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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Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk investing is about making the right decisions, not many decisions.
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