Warren Buffett: Why He’s Been Crushed by COVID-19

A lack of exposure to tech stocks like Shopify Inc (TSX:SHOP)(NYSE:SHOP) has hurt Warren Buffett in 2020.

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2020 hasn’t been the best year for Warren Buffett. After selling its entire position in airline stocks, Berkshire Hathaway lost $50 billion in the first quarter — one of the worst in the company’s history. Buffett’s Q1 loss has led to Berkshire’s stock underperforming the S&P 500 year to date.

Indeed, Buffett’s moves in 2020 have left some long-time fans scratching their heads. Buffett isn’t known for selling stocks, even when they’re way down, so his airline plays were confusing to many. His Delta sale in particular confused a lot of people, as he had doubled down on the stock just months before selling it.

In this environment, Buffett and Berkshire are clearly taking a beating.

The question is, why? In the past, Buffett was known for buying the dip and using downturns as opportunities to buy stocks cheap. Now, it seems, he’s taking his losses on the chin. It’s a marked departure from historical norms, raising the question of whether the “Oracle” has lost his touch.

Heavy exposure to battered sectors

A big part of Buffett’s underperformance in 2020 comes from the sectors he was invested in prior to the crash. As previously mentioned, he held a lot of airline stocks, which he later sold. He also held a lot of banks, which he’s still holding onto.

Both of these sectors have been beaten down badly. Airlines, in particular, are really hurting. If you look at a stock like Air Canada (TSX:AC), for example, it’s just getting beaten down day after day. As of this writing, the stock was down nearly 64% for the year. Reasons for the slide include cancelled flights, low demand for travel, a disastrous $1.05 billion Q1 loss, and a dilutive equity issue. All of these factors contributed to terrible first and second quarters for Air Canada. The same factors apply to the U.S. airlines Buffett sold at a loss.

Not enough tech

A second reason for Buffett’s underperformance this year is a lack of tech investments. While Buffett is well known for his Apple investment and just recently got into Amazon, the “Oracle” just doesn’t have that much tech in his portfolio.

That’s a problem because the NASDAQ — with its heavy weighting in tech — is driving most of the gains this year. After solid results from major tech companies in Q1, the NASDAQ quickly walked off the COVID-19 market crash and reached new highs. The S&P 500, by contrast, is still down for the year.

Foolish takeaway

For years, investors have looked to Warren Buffett for inspiration, seeing him as a voice of calm amid market turbulence. Until recently, that line of thinking paid off. Even with his underperformance in recent years, Buffett’s long-term average is still 20% — double that of the S&P 500.

Now, however, Buffett’s limitations are starting to show. With tech stocks like Shopify making up ever greater percentages of equity market returns, it’s hard to outperform when you avoid them. It looks like Buffett is paying the price for doing so.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Andrew Button has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Apple. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Shopify, and Shopify. 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), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon.

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