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1 Thing Warren Buffett Didn't Do During the Market Crash That May Surprise You

By David Jagielski – May 24, 2020 at 5:27AM

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Berkshire's latest 13F filings were released earlier this month.

Warren Buffett fans are always eager to see which stocks Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.95%) is buying and selling. During the COVID-19 pandemic, there's even more interest in how the billionaire investor's company is handling this unique situation. On May 15, Berkshire released its latest 13F form, which shows the company's holdings as of the end of March 31 -- after the markets crashed. Like many investors, Berkshire was selling many of its stocks. But what's surprising is one thing that it didn't do a lot of: buying.

Buffett was hoarding cash, not stocks

One of Buffett's most popular pieces of advice is to "be greedy when others are fearful," suggesting that the time to buy is when pessimism in the markets is high. There was certainly plenty of pessimism in mid-March, when stocks were crashing with no end in sight. At one point the markets were performing so poorly that the normally stable S&P 500 was down 30% from where it had been at the beginning of the year.

And yet, what's noticeable in Berkshire's 13F report was that the company did very little buying. The biggest move it made was selling more than 10 million shares of Goldman Sachs (GS -1.03%). Even as many companies were hitting all-time lows, Buffett wasn't eager to load up on stocks. Berkshire decreased its position in 19 stocks during the quarter and increased its position in just three companies -- PNC Financial Services Group (PNC -0.87%), Delta Air Lines (DAL -1.34%), and United Airlines Holdings (UAL -1.16%). However, Berkshire would later go on to dump its airline investments.

100 dollar bills.

Image source: Getty Images.

Why didn't Buffett buy more stocks?

Instead of buying shares, Berkshire was adding to its liquidity. At the end of March, it held a record $137 billion in cash and cash equivalents on its books. With the markets in such unknown territory, the focus for Berkshire was simply on getting through COVID-19 and conserving cash rather than looking for bargains to buy.

In a recent interview with The Wall Street Journal, Vice Chairman Charlie Munger said that keeping investors safe was a priority for Berkshire. He compared the market crash to a natural disaster, saying: "We just want to get through the typhoon, and we'd rather come out of it with a whole lot of liquidity. We're not playing, 'Oh goody, goody, everything's going to hell, let's plunge 100% of the reserves.'"

Cash gives Berkshire lots of flexibility down the road to make a large, aggressive purchase when management sees an opportunity to do so. With the markets recovering since March's crash, it's likely Berkshire is going to continue adding to its cash balance, especially with the pandemic nowhere near over.

What investors can learn from Berkshire's latest moves

The key takeaway in all this is that sometimes even the best investors don't know what will happen next or what to invest in. Sometimes standing pat and waiting for the opportunity is the best move to make. Another takeaway: You don't have to dump an entire investment to free up cash.

Berkshire was able to add to its cash by trimming many of its positions by modest amounts. That included selling shares in two stable, well-performing healthcare stocks, DaVita Healthcare (DVA -1.42%) and Teva Pharmaceuticals Industries (TEVA 3.20%). Berkshire cut its investment in both companies by about 1% each. By making subtle, small-percentage moves in many stocks, Berkshire was able to avoid selling off a larger holding in a key stock.

It was a good strategic move to make, especially in the case of DaVita and Teva, which have done well this year and could continue to show strength, as demand for health products and services may be on the rise during the pandemic.

Teva's shares are up more than 20% since the start of 2020. In its first-quarter results May 7, the drug manufacturer reported revenue growth of 5% from the prior-year period. The company benefited from stronger demand for its products during the quarter, which helped it report a net profit of $25 million, compared with a loss of $97 million during the same period a year ago.

Shares of DaVita, meanwhile, are up a more modest 6% this year -- which is still better than the 9% loss the S&P has incurred in 2020. In its most recent quarterly results, released May 5, the company's top line was up a modest 4% over the prior year, and it posted a profit for the fifth consecutive quarter. The kidney dialysis services company is a good example of a stable, long-term investment that's critical to the lives of its patients. While its profit margin is normally in the single digits, DaVita's consistently stayed in the black in each of the last 10 years.

In all, Berkshire's moves have shown that you can free up cash flow while keeping your positions largely intact. It's a great lesson for investors, especially during the pandemic: Buying shares doesn't have to be an all-or-nothing endeavor. And just because stock prices are crashing doesn't mean that value investors are buying them up. Sometimes the best move is not making one at all.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Delta Air Lines and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$406,470.00 (-0.06%) $-230.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$267.02 (-0.95%) $-2.56
Teva Pharmaceutical Industries Limited Stock Quote
Teva Pharmaceutical Industries Limited
$8.07 (3.20%) $0.25
DaVita Inc. Stock Quote
DaVita Inc.
$82.77 (-1.42%) $-1.19
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$293.05 (-1.03%) $-3.06
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$32.53 (-1.16%) $0.38
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$28.06 (-1.34%) $0.38
The PNC Financial Services Group, Inc. Stock Quote
The PNC Financial Services Group, Inc.
$149.42 (-0.87%) $-1.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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