Skip to content

What Warren Buffett is doing in this crisis is a really worrying “contradiction”

May 27, 2020

2020 was certainly a year full of surprises. January seemed like a very long month because a lot has happened. We had natural disasters, airplane accidents and the danger of a world war. But January ended. The other months came and things only got worse. And I’m not talking about the reggaeton singer Bad Bunny being selected on the cover of the renowned Rolling Stone magazine. Tragic event. Obviously, the event of the year is the coronavirus pandemic that has turned our lives into a science fiction film. Then came the killer wasps, the UFOs and the Tik Tok videos. However, the most painful blow of all is the economic crisis. And of course the collapse of the markets. AND What is Warren Buffett doing while it is all running? They sell. Burning stocks. I mean, what is missing is that Thanos arrives.

Now we can worry. Warren Buffett fans know very well that this behavior is extremely unusual. It’s the world upside down. We all know the creed. Be greedy when everyone is afraid. Buy them from the pessimists. Smile when prices drop. Buy cheap, sell expensive. Never sell below. Don’t worry about macroeconomics. Look for undervalued assets and keep them forever. These are my Uncle Warren’s teachings. What the hell is going on Sale? As? How? But why?

After the collapse in late March, I became curious about my uncle Warren Buffett’s new acquisitions. Good Uncle Warren was always on my mind. What are the chances in this crisis? Banking was the chosen sector during the 2008 crisis. The financial crisis hit the banks very hard and stocks fell. As the public panicked and half the world started selling at a lean chicken price, Warren was the big buyer of these short fruits.

What Warren Buffett is doing in this crisis is a really worrying “contradiction”What Warren Buffett is doing in this crisis is a really worrying “contradiction”

Read on: According to Max Keizer, Buffett “killed his reputation” for being an idiot for Bitcoin

For years, the most successful investor in history and CEO of Berkshire Hathaway, one of the largest companies in the world, has been collecting a huge pile of money. In interviews he was asked for years why. And he always answered right away. Apparently he doesn’t find anything attractive because the ratings are very high. I mean, everything is very expensive. Those of us who know Warren’s language know what he said. We were in the middle of a financial bubble that would explode sooner or later.

All of this means that after reading one report after another in his office in Omaha, Nebraska, The basic value of the companies does not justify their market price. I mean wealth and income. When we evaluate the deal, the total amount is less than the price of your listing. Buying the business at that price is just absurd. Buffett prefers to continue to accumulate cash instead of paying dearly for a stock that isn’t worth that particular price.

He has repeatedly suggested that a good indicator for the valuation of the SP 500 is to compare it to gross domestic product (GDP). The bigger the SP 500 is in relation to GDP, the closer we are to a bubble.

Before the arrival of the corona virus, we had three things that bladder scream at us. The S P 500 through the roof, declining GDP and unbelievable money accumulation in the Berkshire tills. It is already a pattern that is distributed before every crisis. If the company records conservative earnings on its books, it is because it has a lot of money at its disposal. Then when the crisis hits and prices drop, Warren and Charlie Munger (his brother in arms) With this money they buy good offers at reasonable prices. After the recovery begins, prices rise and make a fortune. Profits are reinvested and everything starts again. Here is the secret of success.

Well, it’s not really a secret because Warren keeps repeating it in his annual report. That is what Uncle Warren does. Buy as close to the ground as possible during the crisis. And never sold if possible. And when you sell, you do it in the best possible conditions. This is close to the maximum in the middle of a bubble. That is, during the up cycle. In Warren Buffett’s screenplay It is sold on the rise and bought in a crisis. You could say it’s the Buffett formula. He has his method. And his followers know him very well.

Read on: Warren Buffett expects the market to decline and Bitcoin to fall with it

Here’s the big surprise. We were in shock when he announced that he had sold his stake in the airline sector. Berkshire controlled 11% at Delta Airlines, 10% at American Airlines, 10% at Southwest Airlines and 9% at United Airlines. Well, he got rid of everything. And this caused further sinking in these actions. For something called the “Buffett Effect”. When Warren Buffett buys something, the price goes up. And when you sell something, the price goes down.

Warren has given up an entire sector in a crisis. Definitely turned the world upside down. I thought for a moment that I would increase their positions. We all assume that he would act the way he always behaved. And this surprise didn’t come alone. Because then he announced something even more surprising. Banking was the next goal. This is for pulling hair. Until recently, Warren proudly defended his bank positions. I don’t speak years ago. I’m talking about interviews late last year and early this year. When I heard about the airlines, I was surprised, but it didn’t seem to be the end of the world. But the banking thing seemed unusual to me. I fell behind here. I said to myself: “Now we are in trouble. This crisis is not like the others. “

Goodbye Goldman Sachs, Bank of America and Wells Fargo! “Spoiled children of life! Your story is over. We finished counting it… ”Well, sometimes eternity is a moment. When he bought these stocks, he said more than once that he would keep them forever. This time was short-lived forever. It was a fleeting love like so many others. Great wedding, loud divorce.

What’s up with Warren Buffett? Why isn’t he dancing in this crisis? Is our old man beating his years? Well, here we are entering speculation. Warren may be waiting for a second big climb. In other words, this story is not over and this recovery is temporary. The worst is yet to come. Cash is not profitable, but there is security. And the ability to save companies in your group that get into trouble during the crisis. In other words, will reverse inside. He will certainly receive reports about his business. And he knows very well what goes in and what goes out. Are you going to use your money to take care of the family? But before that, he decided to clean the house. Maybe he couldn’t save all the airlines. But I could save a chocolate factory, for example.

Read Next: In Defense Of Warren Buffett: Why Isn’t He An Idiot?

So you might think that you are looking for stability and sufficient liquidity to achieve your best positions in your portfolio. It would not be stupid to think that the economy is very bad and that there could be a bankruptcy pandemic. But not only that. We saw further declines in the stock markets. In this scenario, Warren’s decision makes sense. How can you buy now when we think prices will collapse soon and many of our companies will get in trouble and need bailouts? An exceptional situation requires exceptional measures and we cannot follow the same old formula. The old formula worked very well in the past, but lost its validity due to a historically exceptional crisis.

Why do we as crypto enthusiasts care whether Warren Buffett does or not? Warren Buffett is certainly not infallible. He could be wrong and end his brilliant career with the biggest mistake ever. That is possible. However, there is a possibility that we will see new falls like in March in the near future. Now we are very confident that the worst is over, but it is still very early to win. Suddenly we haven’t bottomed yet and this recovery is only temporary.

This is important because the correlation between Bitcoin and the SP 500 has been astounding lately. With this recovery we are experiencing a small boom. Deconfusion plans, stimuli and rescue plans have had a positive impact. In the case of Bitcoin, the halving is added and the crypto community is too confident, immersed in blinding and ruthless trust. Error. It is a mistake to abuse our luck. Yes, it is possible that this crisis is a V. And the floor is already behind us. I mean, the worst is over. But it is also possible that we stand in front of a W and experience new surprises later. It is better not to count the chickens before hatching. Let’s listen to Uncle Warren.