What happened

Shares of the Warren Buffett-led conglomerate Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) fell 12% in the month of March, according to S&P Global Market Intelligence. The COVID-19 outbreak accelerated in Europe and the U.S. at the beginning of the month, causing virtually all economically sensitive stocks to fall sharply, as a wide swath of the economy was subsequently ordered to shut down.

Similing Warren Buffett.

The countercyclical Warren Buffett. Image source: The Motley Fool.

So what

Many investors might think the downturn will benefit Berkshire in the long run, as the company had accumulated a stunning $125 billion in cash and cash equivalents on its balance sheet as of year-end. Buffett runs Berkshire to be countercyclical, which means when the tide goes out (and it is most certainly going out now), Berkshire is usually there to make investments at bargain-basement prices. It has exhibited stunning patience during the last five years or so, not having made many major investments since Apple (NASDAQ:AAPL) in 2016.

Yet even though Berkshire holds a ton of cash, it also has significant stakes in companies that have been absolutely hammered by the current economic contraction. These include large holdings in airlines, banks, and even a few energy stocks. Those industries have all been ravaged during the coronavirus outbreak and subsequent Saudi Arabia-Russia oil price war.

In addition to the publicly held stocks, Berkshire also owns the BNSF railroad and large manufacturers such as Israeli toolmaker ISCAR, industrial manufacturer Marmon, and aerospace parts manufacturer Precision Castparts. Thus, while it initially appeared Berkshire could benefit from a market downturn, government-imposed quarantines are likely to severely affect many Berkshire businesses, offsetting potential new opportunities.

Now what

It will be very interesting to see what Buffett and partner Charlie Munger do now and over the coming months in regard to capital allocation. On the one hand, they may be able to scoop up bargain-priced securities. On the other, Berkshire may need to provide liquidity and bailouts to many of its existing holdings for an uncertain period of time. That may eat into its large cash pile somewhat. 

In any case, there seems to be just as good a case for selling many of Berkshire's holdings as there is to bail them out. We'll get more information at Berkshire's upcoming annual meeting, which will be held virtually on Saturday, May 2.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.