Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett is one of the most successful investors of our generation, and he's witnessed quite a bit over his many decades as an investor. Just since the beginning of 1950, Buffett has navigated his way through 37 stock market corrections of at least 10% (not rounded), and he's about to contend with No. 38.
This past week, the three major U.S. indexes logged their worst single-week performance since October 2008. When the dust settled, the iconic Dow Jones Industrial Average, tech-heavy Nasdaq Composite, and broad-based S&P 500, tumbled by 12.4%, 10.5%, and 11.5%, respectively. These declines were all on the heels of growing concern surrounding COVID-19, the lung-focused novel coronavirus that's killed more than 2,900 people worldwide and infected over 85,000 people, as of Feb. 29.
As you can imagine, not even the most revered investors were spared from the stock market downdraft last week, with the Oracle of Omaha taking his fair share of "lumps."
If you thought you had a bad week, wait till you see Buffett's one-week decline
Warren Buffett's conglomerate, Berkshire Hathaway, makes money two ways. Over the decades, Berkshire has acquired around five dozen businesses from a host of sectors and industries that contribute to the company's top and bottom lines. But the Oracle of Omaha also manages Berkshire's 52-security investment portfolio which, as of recently, had well surpassed $250 billion in market value.
However, as of the closing bell on Friday, Feb. 28, Berkshire Hathaway's investment portfolio had retraced to a value of $212.8 billion. While I don't have the exact peak-to-trough figure on Buffett's portfolio, I can tell you with certainty that it's lost at least $45 billion in market value from the peak valuation that I witnessed in mid-February.
The losses Buffett's portfolio experienced last week were especially pronounced among his 10 largest holdings, seven of which declined in value by more than $1 billion. Buffett's 10 largest holdings reduced the size of Berkshire's investment portfolio by roughly $28.5 billion last week:
- Apple (NASDAQ:AAPL): $9,730,224,415 decline in value.
- Bank of America (NYSE:BAC): $5,420,550,396.
- Coca-Cola: $2,656,000,000.
- American Express: $3,785,719,179.
- Wells Fargo: $2,214,008,488.
- Kraft Heinz: $810,830,697.
- JPMorgan Chase: $1,172,444,160.
- US Bancorp (NYSE:USB): $1,074,247,502.
- Moody's: $770,683,865 (includes dividend payout on Monday, Feb. 24).
- Delta Air Lines: $832,488,753.
There wasn't much spared from the COVID-19-induced decline. For instance, falling yields worldwide are raising concerns about net interest margin, and therefore the net interest income that money-center banks like Bank of America and Wells Fargo will be able to generate. Financials are Berkshire's largest sector-based holding by a mile, so this is of obvious concern.
Supply disruption was also a big theme, with Apple having already warned that the coronavirus disease 2019 would cause it to miss its upcoming revenue numbers. Likewise, flight cancellations caused by COVID-19 are directly impacting Delta Air Lines.
Don't shed a tear for Buffett -- he's probably thrilled
While a decline of $28.5 billion in value among Berkshire Hathaway's 10-largest holdings is no reason to cheer for most investors, sharp declines in the stock market have always been a source of jubilation for Warren Buffett. Following the financial crisis, Buffett had this to say about the sharp declines experienced in the stock market:
It's been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.
Buffett has also plainly said, "The best chance to deploy capital is when things are going down." And gone down they have.
As recently as Berkshire Hathaway's 2018 shareholder letter, Buffett addressed why he hadn't been putting the company's record amount of cash to work. He noted that "Prices are sky-high for businesses possessing decent long-term prospects." Of course, this past week we've seen some of those valuations retrace considerably. Whether it was enough to entice Buffett and his investment team to begin deploying some of Berkshire's $128 billion in cash remains to be seen (we'll know more when Berkshire files its 13F in mid-May), but a falling stock market has always been a winning formula for Warren Buffett to scoop up brand-name businesses on the cheap.
The thing is, Buffett has historically sought out and invested in businesses that have brand-name appeal and have proved the ability to stand the test of time, regardless of what crises have cropped up. For instance, even with global yields plunging, which can threaten the interest income earning power of banks, Buffett has chosen to generally increase his holdings in Bank of America and US Bancorp. BofA and US Bancorp have both been diligently working on reducing their operating expenses by closing physical branches and focusing on more cost-efficient (and engaging) digital banking platforms and apps.
Buffett's buy-and-hold investment thesis is also working in his favor. You see, all 37 of those previous corrections in the S&P 500 since the beginning of 1950 have been firmly placed in the rearview mirror by bull-market rallies. Over time, earnings growth supersedes emotional trading and leads to market cap expansion for high-quality companies. Buffett has proved that even if you're not right all the time, simply allowing your winners to continue running higher can lead to substantial wealth creation.
As Buffett's track record shows, if the stock market continues to decline, being a buyer with a long-term mindset will almost certainly be a smart decision.