When Warren Buffett feels 'fear', global markets quake

Advertisement
When Warren Buffett feels 'fear', global markets quake
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks to reporters during the company's annual shareholders meeting in Omaha.
  • "Fear is the most contagious disease you can imagine. It makes the virus look like a piker," Warren Buffett, Chairman and CEO of Berkshire Hathaway, said.
  • Buffet's net worth is an estimated $72 billion, and his investment firm has a cash pile of $137 billion.
  • Buffett's view, and it is hard to disagree with it, the worst of the coronavirus impact on the global economy and markets may not be over yet.
"Fear is the most contagious disease you can imagine. It makes the virus look like a piker," Warren Buffett, Chairman and CEO of Berkshire Hathaway, and more importantly an iconic investor said. "I don’t believe anybody knows what the market is going to do tomorrow, next week, next month, next year,” he added.

The words are from a man whose net worth is an estimated $72 billion, and his investment firm has a cash pile of $137 billion, but the New York Times headline read 'Buffett isn't buying anything'. When that happens, whatever one is holding may seem like an excess that should be gotten rid of immediately.

The picture of global markets this Monday is a reflection of that quaking feeling inside every trader and investor.
IndexCountryMonday, May 4
SensexIndia-5.94%
Hang SengHong Kong-4.18%
CAC 40France-4.17%
DAXGermany-3.34%
Nikkei 225Japan-2.84%
Dow JonesUS-0.87%

Buffett may be known as one of the wisest investors who is willing to endure the cost of holding on to cash for long periods of time, without the FOMO (fear of missing out). Berkshire didn't buy a single stock since March 10 except for those of itself.
Advertisement

However, his firm Berkshire Hathway clocked a record loss of nearly $50 billion⁠— at a time when the global economy was still functioning for more than two out of thethree months in question.

Buffett's view, and it is hard to disagree with it, the worst of the coronavirus impact on the global economy and markets may not be over yet.

The lesson for investors in India
Advertisement


To put it in the Indian context, India's largest consumer firm Hindustan Unilever (HUL), the subsidiary of the famed British-Dutch multinational giant, clocked a 7% contraction in sale volumes between January and March 2020. India only shut down its economy on March 25; shops were open for nearly the entire quarter except for the last week.

Even after that, people were hoarding, panic buying essentials every few days as the lockdown continued to extend, and is now scheduled to end on May 17. If one week's lockdown could cause a 7% fall in volume growth, investors fear about what six weeks can do. Investors in HUL lost nearly $3.5 billion in a single as the stock slumped nearly 5% on May 4.

When Warren Buffett feels 'fear', global markets quake
Source: BSE

Advertisement
Side note: the plight of HUL also shows is that the Indian economy wasn't in great shape even before coronavirus struck.

HUL is just one example — though a stock that is considered to be among the safest bets because people will never stop buying soaps, shampoos, and detergent⁠— the others where human discretion is a factor, in sectors like cars, travel and tourism, luxury items like watches and even credit cards, one would dread to think of what the April-June quarter may look like. As Buffett put it, "our airline position was a mistake. Berkshire is worth less today because I took that position than if I hadn't." And that was before the COVID-19 pandemic seems to have changed the industry forever.

Airline stock4-May
Indigo-6.86%
SpiceJet-4.91%

Even if one were to invest in Berkshire, without having to figure out the best bet themselves, the stock was down 19% for the year so far until Friday (May 1). This is the same stock that has gained by an average of 20.3% per year for 55 long years until the end of 2019.

Advertisement
Is it funny that many self-proclaimed students of Buffett ⁠— who either read his books or even his quotes off the internet ⁠— made money in April when the 'Oracle of Omaha' sat on sidelines watching? Or is it scary?

SEE ALSO:
SBI, India's largest bank, is only worth a third of HDFC Bank — and the COVID-19 lockdown is making it bleed even more
Google’s mobility report reveals that nearly half of Maharashtra’s workforce went to work despite Coronavirus lockdown
Hero Moto is set to restart 3 of its plants — and here's a checklist for employees
Advertisement

{{}}