Warren Buffett Sold Delta Airlines Stock for a Loss. Should You?
If the Oracle of Omaha's dumping DAL stock, maybe it's time to reconsider your position as well
When folksy investing legend Warren Buffett talks, the world listens. And when he recently revealed that he’s dumping his entire stake in Delta Air Lines (NYSE:DAL) stock, the financial community took notice.
It’s unusual for one man to have such a profound influence, but this isn’t your average investor. It’s the Oracle of Omaha himself, and his humility is as important as his investing prowess. Buffett is demonstrating by example that the ability to admit one’s mistakes and move on is crucial for stock-market investors.
That being said, it isn’t every day that Buffett abandons his stock positions like this. He usually likes to hold on to his positions for years or even decades. So if he’s relinquishing all of his Delta Airlines shares now, there must be a good reason for this, right?
Let’s delve deeper into Buffett’s “oops” moment and see what’s behind the about-face on DAL stock.
Buffett’s U-Turn on Aviation
Just to be clear, Buffett didn’t just dump his DAL stock load. His company, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), divested itself of multiple airline-industry stocks.
So, he wasn’t picking on Delta in particular. Buffett abandoned the aviation market as a whole. Who could blame him, really? Like the other airline-sector stocks, Delta Airlines shares shed more than half of their value since the beginning of 2020.
On the other hand, it’s not typical for Buffett to give up on a stock position just because the share price declined. He’s famous for having said that his favorite holding time is forever. But in the case of DAL stock, apparently the situation is so bad that Buffett’s willing to make an exception to this policy.
Smart as he is, Buffett couldn’t possibly have predicted the outbreak of the novel coronavirus. This is what financial commentators call a black swan event: a rare and unpredictable event that quickly changes the face of the economy.
And so, Buffett simply conceded that “the world has changed” for the airline industry. Hence, Buffett’s decision to divest himself of his Delta Airlines shares wasn’t due to the sharp and persistent decline in the stock price. Instead, it was, as he puts it, because he “just decided that … [he’d] made a mistake.
Buffett Isn’t the Only Bear
Bolstering Buffett’s bearish stance on the aviation industry is none other than Delta CEO Ed Bastian. Evidently, Bastian shares Buffett’s gloomy outlook on the airline sector. Given the massive impact of the spread of the coronavirus, Bastian’s bearish stance is understandable.
Due to the virus’s spread and the resultant stay-at-home orders, passenger loads are at the lowest level in years. In Delta’s case specifically, according to Bastian, the company’s passenger loads are at around 5% of their normal level.
The impact of the virus has devastated Delta’s fiscal standing. In the first quarter of 2020, Delta posted the company’s first quarterly net loss in over five years. The dollar amount of the quarterly net loss was an astounding $534 million. By the end of March, Delta was burning through $100 million on a daily basis.
With the dismal earnings-data release, Bastian offered little in the way of comfort for shareholders. “Delta will be a smaller airline for some time, and we should be prepared for a choppy, sluggish recovery even after the virus is contained … I estimate the recovery period could take two to three years,” he wrote.
If the CEO himself is admitting this, then perhaps retail investors ought to steer clear of the airline industry for the time being. Buffett himself conceded, “It’s a very difficult business … The future is much less clear to me how the business will turn out.”
And if it’s unclear to the Oracle, how are lowly retail traders supposed to assess Delta’s future? Perhaps, for now at least, it’s an endeavor to be avoided.
The Takeaway on DAL Stock
Buffett and Delta’s CEO lack confidence in the airline industry’s near-term future. Need we say more?
When the Oracle and the chief of Delta can’t recommend a stake in the company now, it’s probably best for us mortals to maintain a safe social distance from DAL stock.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
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