The Buffet Lesson
Investors lost close to six lakh crore of wealth in today’s bloodbath as indices saw the biggest single-day fall since March 2020 as the Nifty50 plunged 566.40 points ( 5.74%)to close at 9,293.50 and the BSE Sensex fell 2,002.27 points (5.94%) to 31,715.35. Indices had rallied nearly 8 percent last week.
With all the euphoria of April fizzling out in today’s session and market analysts predicting further downside, today’s fall has once again reignited fears of the benchmark indices revisiting March lows.
As lockdown restrictions help to stem the spread of the coronavirus disease 2019 (COVID-19) and most countries in world including India are opening up their economies, the sentiment was dampened because of the resurfacing of the US-China trade tensions coupled with zero auto sales numbers and an unprecedented contraction in Indian manufacturing output.
Amidst the cacophony of the markets there were very interesting and intriguing news which came out of the annual general meeting of Berkshire Hathaway.
The intriguing news was ace investor Warren Buffet despite sitting on a cash pile of more than 120 billion dollars has not made any significant investment in the equity markets despite the attractive valuations and the interesting news was Berkshire Hathaway exiting all of its airline stock holdings earlier this month. Berkshire picked up large positions in the airlines in late 2016, years after Buffett had sworn off buying an airline stock.
The lesson we should learn from Buffet is because of the COVID-19 pandemic, industries across sectors will be hurt by factors which are extrinsic and beyond their control, it is better to preserve cash because cash is king” and to exit from businesses which have uncertain future as being in love with your stocks could be counterproductive although investment decisions should be entity specific and not generic .
Author: Abhishek Chatterjee