April 6, 2020

Breakingviews: Buffett’s main asset isn’t money but patience

by Breakingviews.

No one makes Warren Buffett spend his money. The sage of Omaha has rescued companies before – think General Electric and Goldman Sachs during the 2008 financial crisis. His firm Berkshire Hathaway has $130 billion in cash and short-term investments, which with asset prices ravaged by a global economic crisis gives him the chance to double down on troubled investments or buy companies outright. With government aid buoying prices, though, he can afford to wait.

It’s one of Buffett’s classic moves to swoop in when companies’ backs are against the wall. Just last year Berkshire Hathaway made a plum $10 billion investment in Occidental Petroleum when Chief Executive Vicki Hollub went hat in hand to Omaha for help in a bidding war for Anadarko Petroleum. Berkshire now clips a juicy 8% coupon on Oxy preferred stock, a deal similar to the ones struck with GE and Goldman in the depths of the global financial crisis.

Plenty of companies need help as the Covid-19 pandemic brings the global economy to a halt. For now, though, it is the U.S. government leading the charge. Airlines have already received a bailout. On Friday oil and gas executives including Occidental’s Hollub and Exxon Mobil’s Darren Woods are meeting U.S. President Donald Trump at the White House. Industries from restaurants to hotels have asked for government cash.

It’s cheaper to take money from Uncle Sam than from Buffett, so company executives might not yet be willing to place that Zoom call to Nebraska just yet. And Washington’s largesse may well only provide a temporary fillip to valuations. So there’s little reason for Buffett to rush in yet.

The 2008 crisis was an apt lesson for him on that point. His September 2008 investment in Goldman worked out just fine, but he would have gotten even more favorable terms two months later when the stock was around 75% lower.

So this time it’s likely Buffett will wait till things get really desperate. Kraft Heinz and some of his other current investments might eventually welcome some cash, potentially at prices lower than where Berkshire first jumped in. Not too long ago, markets were abuzz that he was interested in airlines, too, while pummeled sectors from insurance to trains where he has a history are likely to appeal. Buffett is biding his time, but remains the war chest in waiting.

_____________________________________________________________________

Request a free trial of Breakingviews here

Article Topics

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.×