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.

| More on:
A stock price graph showing declines

Image source: Getty Images.

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.

More on Coronavirus

eat food
Coronavirus

Goodfood Stock Doubles Within Days: Time to Buy?

Goodfood (TSX:FOOD) stock has surged 125% in the last few weeks, so what happened, and should investors hop back on…

Read more »

stock data
Tech Stocks

If I Could Only Buy 1 Stock Before 2023, This Would Be It

This stock is the one company that really doesn't deserve its ultra-low share price, so I'll definitely pick it up…

Read more »

Aircraft Mechanic checking jet engine of the airplane
Coronavirus

Air Canada Stock Fell 5% in November: Is it a Buy Today?

Air Canada (TSX:AC) stock saw remarkable improvements during its last quarter but still dropped 5% with more recession hints. So,…

Read more »

Airport and plane
Coronavirus

Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

Read more »

A patient takes medicine out of a daily pill box.
Coronavirus

Retirees: 2 Healthcare Stocks That Could Help Set You up for Life

Healthcare stocks offer an incredible opportunity for growth for those investors who look to the right stocks, such as these…

Read more »

sad concerned deep in thought
Coronavirus

Here’s Why I Just Bought WELL Health Stock

WELL Health stock (TSX:WELL) may be a healthcare stock and a tech stock, but don't let that keep you from…

Read more »

healthcare pharma
Coronavirus

WELL Stock: The Safe Stock Investors Can’t Afford to Ignore

WELL stock (TSX:WELL) fell 68% from peak to trough, and yet there's no good reason as to why. So now…

Read more »

telehealth stocks
Tech Stocks

The Ultimate Growth Stock to Buy With $100 Right Now

After climbing 600%, this growth stock is now down 68%. But it won't be long before other investors catch on.

Read more »