Even Warren Buffett's Portfolio Isn't "Immune" To The COVID-19 Shutdown

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by Tyler Durden
Saturday, Apr 25, 2020 - 09:30 PM

When Warren Buffett has been mentioned over the last 2 months, it's been in the context of wondering when he's going to deploy some of the $128 billion in (depreciating) cash he has sitting around. So far, he has yet to do that.

At the same time, Berkshire's portfolio has hardly been immune to the coronavirus shutdown. Names like See’s Candies and Precision Castparts are all taking hits as the global economy grinds to a halt. Buffett's portfolio was on a run rate of churning out more than $20 billion in profit annually. That number is likely to come under pressure, according to Bloomberg

“We’ve got a few businesses, small ones, we won’t reopen when this is over,” Charlie Munger said of the portfolio.

While Buffett was able to navigate 2008 with his rock solid balance sheet and diversification, there has been little said from Berkshire about the recent financial crisis. 

Buffett's companies are undeniably tethered to the overall economy. See's Candies, for instance, has furloughed its retail workers. Justin Brands shut down its outlets in Missouri. BNSF will likely report a decline in rail traffic. Precision Castparts temporarily halted some of its operations in April. Lawrence Cunningham, a professor at George Washington University Law School said: “There’s no fortress that’s immune to that right now.”

Some of Buffett's names, like Geico and Lubrizol have been able to weather most of the storm. Geico is dealing with fewer accidents as a result of less driving and Lubrizol said social distancing and work-from-home measures have become customary. Lubrizol has not cut any of its workers. 

CEO Eric Schnur said: “It’s nowhere near business as usual, of course. But keeping people safe in a potentially unsafe situation is something we think about every day whether or not there’s a coronavirus pandemic.”

Buffett has promised in the past that Berkshire would “forever remain a financial fortress”. But investors have been left wondering exactly what that means in terms of Buffett potentially deploying capital going forward. Berkshire underperformed the S&P 500 during the last bull market and people are wondering if Buffett will take advantage of the recent pullback (if you can even call it that) in valuations. 

Buffett did exceptionally well during the 2008 crisis after making preferred stock/warrant deals with names like Bank of America and Goldman Sachs. Munger said the company is proceeding with caution. Berkshire is set to report earnings in May, which could shed some light into the company's capital allocation strategies. 

Buffett said in his 2017 shareholder letter: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”

Shareholder Thomas Russo said simply of Buffett: “He’s patient. One of the best features is that he is able to see opportunities broadly.”