Warren Buffett Says These Stocks Won't Make You Rich

Here's one industry that makes shareholders poorer, time and time again. Even Warren Buffett thinks so.

Jan 19, 2014 at 12:10PM


Source: insapphowetrust.

Warren Buffett is an excellent stock picker. But looking at his stock-picking success only shows half of his incredible skill.

In Buffett's case, it's not about the stocks he picked. Often, it's about the stocks he didn't pick -- stocks he would never own.

One of Buffett's biggest mistakes
In 1989, Warren Buffett had the opportunity to put $358 million to work in US Airways (NYSE:LCC). He received a preferential deal. For his investment in US Airways preferred shares, he'd earn a 9.25% dividend each year. This investment would be great for a company like Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), which had billions to invest from its insurance businesses.

Unfortunately, the investment didn't pan out. Buffett, who had long been a critic of airlines, thought this time might be different. It wasn't. US Airways had costs equal to $0.12 per passenger mile. A new competitor, Southwest, came to market with a business model that put its costs at $0.08 per passenger mile.

Since air travelers have little, if any, loyalty to the company behind a plane, US Airways found itself financially stressed. Buffett eventually got out of the investment, an event he later described as pure luck.

Why airlines aren't good investments
Since the birth of the industry, airlines have produced negative cumulative profits. That is, if you add up the profits and losses of every American airline through history, the sum would be negative. So far, this has clearly been no place to put money to work.


"Hey, nice machine! Just don't ask me to invest in it."

On several occasions, and in the 2008 Berkshire Hathaway annual report, Buffett said the following about airlines:

"If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

Buffett isn't the only investor to avoid airlines. Airline industry legend and former chairman of American Airlines (NASDAQ:AAL) Robert Crandall once warned his workers that the airline he led was a terrible investment. He once said the following:

"I've never invested in any airline. I'm an airline manager. I don't invest in airlines. And I always said to the employees of American, 'This is not an appropriate investment. It's a great place to work and it's a great company that does important work. But airlines are not an investment."

Keep in mind, Robert Crandall isn't just another stock picker or analyst. He's a former airline executive who has won countless awards for his work in the airline industry. If he doesn't believe airlines are investable, how should we?

The fact is, operating an airline is costly. Customers aren't loyal. And unforeseen events, like the recent deep freeze across the United States, can cost the industry millions. Some estimate airlines stand to lose $50-100 million just from cold weather in January.

The key takeaway
Some industries are great for investors. Some are great for consumers. Airlines fit in the latter category. They invest billions of dollars of investors' capital to send passengers from one side of the world to the other, quickly and safely. But when it comes to rewarding shareholders, very few have succeeded. And for that reason -- the fact that airlines are better for customers than shareholders -- Buffett's Berkshire Hathaway will likely never, ever invest in another airline.

Learn from Buffett's biggest wins and worst losses
Warren Buffett has made billions through his investing (and avoiding airlines), and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Fool contributor Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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