Warren Buffett’s Berkshire Hathaway will close some smaller businesses and is positioning itself conservatively as it rides out the coronavirus pandemic, Berkshire Vice Chairman Charlie Munger said in an article published on Friday.
Munger said the phone has not been “ringing off the hook” with pleas from desperate corporate executives for capital, despite Berkshire’s having ended 2019 with $128 billion of cash, Munger told The Wall Street Journal.
That’s a change from the 2008 financial crisis, when Berkshire gave its imprimatur and billions of dollars to companies as disparate as General Electric (GE), Goldman Sachs (GS) and Harley-Davidson (HOG).
However, Berkshire won’t escape unscathed, Munger warned. “This will cause us to shutter some businesses,” Munger said. “We have a few bad businesses that...we could be tolerant of as members of the family. Somebody else would have already shut them down. We’ve got a few businesses, small ones, we won’t reopen when this is over,” Munger said.
The Omaha, Nebraska-based conglomerate, whose market value exceeds $450 billion, has more than 90 businesses in the insurance, energy, railroad, retail and other sectors. Its larger units, such as the BNSF railroad and Geico auto insurer, normally operate in the black, Reuters said.
The coronavirus pandemic may have erased around $64 billion of value from Buffett's equity portfolio at Berkshire, setting up the conglomerate for one of the largest quarterly losses ever by an American company, Reuters recently warned.
"The headline number will be ugly," said James Shanahan, an Edward Jones & Co analyst with a "buy" rating on Berkshire, referring to net results.
Berkshire's portfolio of U.S.-listed stocks, including Kraft Heinz Co, may have shrunk by 26% in the first quarter if Berkshire did no buying and selling, according to Refinitiv data and regulatory filings.
By contrast, the Standard & Poor's 500 fell just 20%, and Berkshire's own stock fell about the same.
Buffett urges investors to think long-term, focusing on Berkshire's operating results and the intrinsic value of its stock holdings, some of which it has owned for decades.
However, the 96-year-old Munger was at a loss for words of wisdom about the future.
“I don’t have the faintest idea whether the stock market is going to go lower than the old lows or whether it’s not.”
The coronavirus shutdown is “something we have to live through,” letting the chips fall where they may, he said. “What else can you do?” Munger asked.
“Everybody’s just frozen. Take the airlines. They don’t know what the hell’s doing,” Munger said. “They’ve never seen anything like it. Their playbook does not have this as a possibility,” Munger said.
“We’re like the captain of a ship when the worst typhoon that’s ever happened comes,” Munger told the paper. “We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity.”
Munger also made it clear that he regards this as a time for caution rather than action.
“Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it. We’re always going to be on the safe side. That doesn’t mean we couldn’t do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we’ll emerge on the other side very strong,” he said.
However, Munger saw a long road back to recovery and whatever will pass as a "normal" economy in the near future.
“Of course we’re having a recession,” said Munger. “The only question is how big it’s going to be and how long it’s going to last. I think we do know that this will pass. But how much damage, and how much recession, and how long it will last, nobody knows,” he said.
“I don’t think we’ll have a long-lasting Great Depression. I think government will be so active that we won’t have one like that. But we may have a different kind of a mess. All this money-printing may start bothering us.”
In his Feb. 22 shareholder letter, Buffett said he expects the stocks to deliver "major gains," albeit irregularly.
Still, the declines reflect challenges the pandemic poses even for Buffett, the world's fourth-richest person according to Forbes magazine and among its most esteemed investors.
Berkshire holds its annual meeting on May 2, and is expected to release first-quarter results on or around that date.
Berkshire did not immediately respond to a request for comment to Buffett’s assistant, Reuters said.
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