Warren Buffett, one of the world’s greatest investors, hosted his annual shareholder meeting for Berkshire Hathaway yesterday.
During his presentation, he predicted that the world has significantly changed. How much? Enough that he has sold all his airline shares that he bought just a month or two ago.
For such a long-term investor like Buffett, this is a remarkable turnaround to sell an asset right after buying it.
Why did he sell over $6 billion of airline stocks in April? He thinks the airline industry is going to materially change in the next few years. He doesn’t believe things will return to normal (at least for the airline industry) for the next 3-4 years.
Flights may not grind to a halt, but even if airlines are reaching 70-80% flight capacity, that means airline fixed costs are still way too high to be an investor.
So what is Warren investing in instead? He currently holds $125 billion of cash on hand. Why? Because he doesn’t think any stock prices fairly compensate him for his money, given the shifting economy.
He even used the word “depression” to describe what might be around the corner. So when the smartest people in the room are signalling that a depression is coming, we must take this seriously.
How Do We Prepare For A Depression
The smartest people I know believe that the soonest we might see a vaccine for Coronavirus is 18 months. And it seems reasonable to believe that the economy can only come back once a vaccine is available.
But we’re nowhere close to that. Right now, economies are “opening up”, but this really only means people are allowed to return to work. It doesn’t mean those workers will be serving the same number of customers as before (they won’t), and it doesn’t mean that people will return to exactly the same habits and routines before the virus (they won’t).
As death numbers and case numbers continue to climb, people are still afraid to go outside. And more than that, the people who are at the highest risk for Coronavirus (older people), also have the most money to spend in an economy.
Supply chains are also showing signs of weakness, and will likely continue that way for the foreseeable future.
So what do you do if 18 months is the “optimal” situation for an economic recovery?
Make a plan. Figure out how you’re going to cover your basic expenses, put food on the table, and take care of any pressing health or medical needs. Once the basics are covered, then you can start thinking about investments. After all, the smartest people in the world are signalling that the recovery will be very slow.
This will likely take a long time to get through. Take responsibility for your situation and make a plan. It’s better to have a plan and not need it, than need a plan and not have it.