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Warren Buffett’s sale of airline shares

15/5/2020

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Following Warren Buffett’s announcement that he had sold all the shares in the four American airlines owned by Berkshire Hathaway there was a very negative market reaction, with their prices falling by yet another 10% or so on Monday 4th May. He explained that the economics of the airline industry had changed so much for the worse that the shares were not worth the $7bn -$8bn he had paid for them. He managed to clawback around $6bn

A rational decision
“We thought we were getting an attractive amount for our money when we were investing across the airlines business and so we bought roughly 10% of the four largest airlines. We probably paid between $7bn and $8bn.
We felt that we were getting a billion, roughly, of earnings in a year (not $1bn of dividends) – our share of underlying earnings was about $1bn. We thought that number was more likely to go up than down over a period of time, but it would be cyclically, obviously.
We treated it, mentally, as if we were buying [the whole] business.”
Mistake
“I was wrong about that business because of something that was not in any way the fault of the four excellent CEOs. It’s a very difficult business.
The airline business – I hope I’m wrong – changed in a very major way. It’s obviously changed in the fact that the four companies are each going to borrow perhaps an average of at least $10 - $12bn.
Well you have to pay that back out of earnings over some period of time. I mean, you are $10 - $12bn worse off if that happens.
They are having to sell stock, and that takes away fr………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
 

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    Prof. Glen Arnold

    I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.

    Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.

    I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.

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In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.  Benjamin Graham




  • About
  • Newsletter
  • Books
    • My Books
    • Other Books
  • Blog
  • Portfolio
    • Buffett-style
    • Modified price earnings ratio
    • Net Current Asset Value
  • Resources
    • glossary of investment terms >
      • A - B
      • C
      • D - E
      • F - G
      • H - I - J - K
      • L - M - N
      • O - P
      • Q - R
      • S
      • T - U - V - W - Y - Z
    • TOP 10 TIPS FOR INVESTORS