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Warren Buffett Has Missed 2 US Stock Market Crashes


May. 21 2020, Updated 7:43 a.m. ET

  • Berkshire Hathaway’s chairman, Warren Buffett, didn’t buy into the US stock market crash in the first quarter. Surprisingly, he was on the sidelines when markets fell in the fourth quarter of 2018.
  • After both of the crashes, US stock markets bounced back in subsequent quarters. Now, the Nasdaq Composite Index (NASDAQ:QQQ) is positive for the year, while the S&P 500 (NYSEARCA:SPY) is approaching the 3,000 level. Did Warren Buffett miss the bus?
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Warren Buffett and the US stock market crash

Warren Buffett, the legendary value investor and chairman of Berkshire Hathaway (NYSE:BRK.B), is arguably among the best investors of all time. His investment advice is widely followed by investors around the world. Among Buffett’s most famous quotes, he said, “Be fearful when others are greedy and greedy when others are fearful.”

In the 2008–2009 financial crisis, Berkshire Hathaway took stakes in companies like General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS). The company made a good return on the Goldman Sachs investment. Meanwhile, the GE bet wasn’t among Buffett’s best investments.

Berkshire Hathaway is selling shares now

In the first quarter of 2020, Warren Buffett sold a large chunk of Goldman Sachs shares. Berkshire Hathaway’s buying activity was very tepid in the quarter and it was a net seller of shares. Buffett is known to buy during a crisis. In fact, that was what he suggested in an interview in February. However, he has been selling shares. In April, Berkshire Hathaway sold all of its airline shares.

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Warren Buffett and Q4 2018 US stock market crash

Warren Buffett surprised everyone when he didn’t buy many stocks as US stock markets crashed in the fourth quarter of 2018. During that quarter, concerns about the US-China trade war, a slowing global economy, and the Fed’s rate hikes had a negative impact on global markets. Apple, Berkshire Hathaway’s biggest holding, also fell more than 30% in the quarter. Instead of adding more Apple shares, the company sold some. Notably, a different investment manager at Berkshire Hathaway sold Apple shares—not Warren Buffett.

Berkshire Hathaway versus the S&P 500

Warren Buffett’s reluctance to part with Berkshire Hathaway’s cash is among the main reasons the stock is underperforming the S&P 500. Last year, Berkshire Hathaway underperformed the S&P 500 by a wide margin. So far, the stock has been underperforming the S&P 500 in 2020.

US stock markets look overvalued after the sharp rally. Most fund managers think that markets have run ahead of their fundamentals. As a result, the risk-reward ratio isn’t favorable. There were buying opportunities before the crash in the first quarter and before the crash in the fourth quarter of 2018.

In the past, Warren Buffett has been “greedy” during such crashes. In contrast, he has been playing it safe this time.


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