Warren Buffett: 'American magic' will overcome coronavirus
'We've faced tougher problems'
Smead Capital Management founder Bill Smead discusses where Berkshire Hathaway CEO Warren Buffett may find opportunities during the coronavirus pandemic and whether Buffett is buying on the market's worst days.
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Warren Buffett admits his billions haven't afforded him any greater insight into addressing the COVID-19 pandemic than anyone else in the U.S., and he's not sure what its long-term effects on the economy might be.
What the 89-year-old billionaire is sure about, he told investors in a pared-down version of Berkshire Hathaway's usually festive and crowded annual meeting, is that "the American magic has always prevailed, and it will do so again."
In a detailed presentation before touching on a gloomy quarterly earnings report, Buffett recounted America's economic history from its founding, with a population of 3.9 million nestled in 13 states along the eastern seaboard, to its present makeup of 50 states comprising the world's largest economy, with about $22 trillion in gross domestic product.
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Accomplishing that in 231 years -- just 46 years longer than the combined lifespans of Buffett and his longtime partner Charlie Munger -- "is beyond what anybody could have imagined," he said. "But it wasn't done without some very, very serious bumps in the road."
Just 70 years after the country's founding, the Civil War between its northern and southern regions left 6% of the working-age males between 18 and 60 dead, he noted.
We haven't faced this exact problem or anything that quite resembles this problem, but we've faced tougher problems.
From there, the U.S. weathered crises from the stock market crash of 1929 to the Great Depression, World War II, the Cuban missile crisis, the 9/11 terrorist attacks, and the 2008 financial crisis.
"We've faced great problems in the past," he said. "We haven't faced this exact problem or anything that quite resembles this problem, but we've faced tougher problems."
Buffett's Berkshire Hathaway hasn't been immune to the pandemic or the economic shutdown imposed to curb its spread.
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The Omaha, Nebraska-based conglomerate reported a nearly $50 billion loss for the three months through March because of a drop in the paper value of its investments, though it's still sitting on a cash pile of more than $137 billion.
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That would allow Buffett to invest in high-value companies that face challenging operating conditions during the pandemic, much as he did in the financial crisis, putting $5 billion into investment bank Goldman Sachs and $3 billion into General Electric.
Warren Buffett after the annual Berkshire Hathaway shareholders meeting in Omaha, Nebraska, in 2019. (AP Photo/Nati Harnik) (AP Photo/Nati Harnik)
"Prior to the middle of March, many of our operating businesses were experiencing comparative revenue and earnings increases over 2019," Berkshire told investors in its quarterly earnings report, released Saturday. "As efforts to contain the spread of the COVID-19 pandemic accelerated in the second half of March and continued through April, most of our businesses were negatively affected, with the effects to date ranging from relatively minor to severe."
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Berkshire's holdings range from consumer businesses like Fruit of the Loom underwear and Borsheim's jewelry to Burlington Northern Railroad, Geico insurance, and aerospace manufacturer Precision Castparts.
With shelter-in-place orders throughout much of April, the airline industry and its suppliers have been hammered while retailers have struggled with the loss of on-site customers at bricks-and-mortar stores.
To cope with the loss in revenue, Berkshire subsidiaries have cut executive pay, furloughed workers and trimmed capital spending to keep enough liquidity to weather the pandemic.
"The range of possibilities on the economic side are still extraordinarily wide," Buffett said. "We do not know exactly what happens when you voluntarily shut down a substantial portion of your society. In 2008-09, when our economic train went off the tracks, there were some reasons why: The roadbed was weak in terms of the banks. This time, we just pulled the train off the track and put it on a siding. I don't really know of any parallel."