Berkshire Hathaway recently sold its entire stake in Delta, Southwest, American, and United Airlines and stock prices fell after the announcement. What is interesting is all but one out of the four of the airline’s stock prices have gone higher since the low on May 4th when Warren Buffett’s sale was made public.
Stock pricing adjusts daily to numerous events. The decision of one investor, albeit a highly successful and world-renowned investor, should not be your only guiding principle of how to handle your investments. Mr. Buffett has had biases against investing in airlines. Here is one of his famous quotes from the 2007 Berkshire Hathaway Annual Letter:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
— Warren Buffett, in the 2007 Berkshire Hathaway shareholder letter
Even Warren Buffet isn’t exempt from making the occasional mistake. Time will tell if his decision to sell was the right one or not. Individual stocks and market prices are set by the collective knowledge of all investors. In this video, Kevin discusses how to take advantage of this collective knowledge rather than follow the few outliers who are trying to outsmart the system.
May 26, 2020