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The shocking truth about Warren Buffett now and what it means for investors

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Warren Buffett held Berkshire Hathaway’s annual meeting on 2 May. The event is popular with investors because it gives us an opportunity to hear what the great investor has been thinking. This year, he held the meeting virtually to comply with social-distancing restrictions.

And what he’s been thinking may be shocking if you’re used to his usual rhetoric. Normally, Buffett says things like: Be fearful about stocks when others are greedy and greedy when others are fearful.”

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Warren Buffett has switched around his own advice

We might expect that he’s been filling his boots with shares during the recent stock market crash. But he hasn’t. Not much, anyway. Instead, he’s been selling in a big way. To be specific, he dumped all his holdings in airlines. His usual approach of being greedy when others are fearful has gone out the window in this case.

But that’s understandable. The other great pillar of Buffett’s approach is to buy high-quality enterprises. Put the two requirements together and we have: buy the shares of good-quality businesses when their shares are selling cheap. And that usually means shopping for shares when a temporary set-back knocks trading, profits and the share price.

With the airlines we have two problems. Firstly, they’re not good-quality businesses. They are, instead, highly cyclical businesses. Secondly, the set-back in the industry may not be temporary. Indeed, it’s possible consumer habits may change forever because of the pandemic. Airlines may never again see the levels of business they saw before the crisis.

But the shocks don’t end with airlines. Buffett hasn’t been greedy with any kind of stock during the market crash. Why? Buffett explained at the meeting: “We have not done anything because we haven’t seen anything that attractive.”

We have opportunities that Buffett doesn’t have

Does that mean we private investors should be sitting on the sidelines during this pandemic refusing to buy cheaper-looking shares? Not necessarily. Buffett’s position needs to be set in context.

Berkshire Hathaway’s recent quarterly earnings report revealed the company is sitting on a cash pile of around $137bn. And Buffett said at the meeting: “We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30bn, or $40bn, or $50bn. And if we really like what we are seeing, we would do it.”

And I reckon that’s the crux of the problem. Buffet’s Berkshire Hathaway is so big, and has so much capital to invest, that it’s hardly worth him bothering with investments that don’t take a lot of the capital available. Why? Because, even if smaller investments do well, they’ll hardly move the dial when it comes to Buffett’s overall portfolio.

But for investors with less money to invest, I reckon there are many decent opportunities available on the stock market right now. However, I share Buffett’s caution about certain sectors, such as travel, hospitality, and others. This is, indeed, a stock-picker’s market. And, for me, that means it’s time to go forth and pick shares to invest in.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) 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). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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