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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers