Over the past few weeks and months, there's been plenty of speculation and comment as to why Warren Buffett (Trades, Portfolio), whose mantra is "Be greedy when others are fearful," didn't jump into the market to deploy some of Berkshire Hathaway's BRK.A BRK.B cash in the crash earlier this year.
Some market commentators have accused the Oracle of Omaha of being too old to act quickly. He's also been accused of being too scared or old-fashioned to make the most of the market decline.
So far, Buffett himself has not explained his reasoning in detail. At the Berkshire annual meeting earlier this year, the legendary investor offered some guidance for investors watching, but he didn't provide any road map for investors to follow.
We will likely have to wait for his annual letter to shareholders, which will be published early next year, to get any detailed insight into his thinking at the height of the crisis. In the meantime, we can only speculate as to why Buffett did what he did.
One explanation may be that he thought the crisis was going to be far more severe. Of course, the Covid-19 crisis is not yet over, so it may be premature to say that he thought the crisis would be far more severe than it was. It could become a lot worse before it starts to get better.
Nevertheless, the fact that Buffett recently seems to have been happy to deploy some of his cash pile when he wasn't at the beginning of the crisis suggests that his view has softened somewhat over the past few weeks.
Indeed, following the announcement that Berkshire was paying $10 billion to acquire a set of gas pipeline assets at the beginning of this year, speculation is rife that Buffett could have spent as much as $5 billion of Berkshire's cash over the past few weeks repurchasing the company's own shares. If true, this could indicate a dramatic shift in his way of thinking.
According to value investor Mohnish Pabrai (Trades, Portfolio), who closely follows the Oracle of Omaha, at the beginning of the coronavirus crisis, it seemed as if Buffett was worried about Berkshire's future.
In a video fireside chat with Jeff Pintar, the CEO of Pintar Investment Company, which was published in May, Pabrai noted that at Berkshire's annual meeting, Buffett warned that the conglomerate's $130 billion+ cash pile might be insufficient. Specifically, Pabrai noted:
"He said that he doesn't think that the hundred thirty plus billion cash pile that Berkshire has is that big in this environment...he always until now said that 'we're drowning in cash' and recently in the annual meeting he said, 'we really don't have that much cash.'"
This goes some way to explaining why Buffett didn't run out with a bucket to buy as many stocks as possible in the March market. He may have been waiting to see how the crisis unfolded, and if it became as bad as some analysts were projecting.
Since these comments, it seems the Oracle of Omaha has revised his stance on spending some of his valued cash pile. That may change if we see a sudden change for the worse in the stock market environment. The crisis is not over yet, and the economy may not recover to 2019 levels for many years, despite the recovering valuations.
However, we know far more about the virus today then we did six months ago (at least, some of us do), and promising treatments are working their way through the pipeline.
That could explain why Buffett's stance has changed, and we may yet see the Oracle deploy more cash into the market. Berkshire is also pursuing organic growth. It recently increased the size of its specialty insurance team in the UK to take advantage of new opportunities in this market.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Berkshire Hathaway: How Much Is the Company Really Worth?
- Some Thoughts on the Daily Journal's Current Valuation
- Mohnish Pabrai on Leverage and the Polarized Market
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