Warren Buffett's shocking bailout from S&P 500 airline stocks is costing him billions in just weeks. And individual investors and traders are scoring big-time from his panic sell.
Over the past three weeks, Buffett missed out on a $2.7 billion jump in the shares of Delta Air Lines, United Airlines, American Airlines and Southwest Airlines that he completely dumped in May. That's based on an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith of Buffett's disclosed positions as of March 31 and in May.
And from May 1, around the time he sold his airline stocks completely, Buffett missed out on a $1.9 billion gain. It's just one of Buffett's many headaches in 2020, leading to his dismal year.
Meanwhile, individuals are picking up a massive score. It's a reminder investors must either get the timing right, or find true long-term winners built to endure economic cycles like those on IBD's Long-Term Leaders.
Airline stocks measured by the U.S. Global Jets ETF rocketed 67% in just three weeks after hitting rock bottom on May 15. And that bottom formed just weeks after Buffett announced he was selling his entire positions in early May. Buffett's Berkshire Hathaway had been a huge airline investor: Holding 10% or more of several carriers.
Buffett "is human and he missed the airlines," says U.S. Global CEO Frank Holmes. U.S. Global created the U.S. Global Jets ETF, which has seen its assets surge to $1 billion. "Other (investors) have gone back and looked at the previous cycles and done the cyclical analysis and say this is a good bet for my money."
Airlines Giving Huge Boost To S&P 500 Industrials
The powerful airline stock rally is a key part of the S&P 500's move higher from the March coronavirus-panic lows. Airlines are part of the S&P 500 industrials sector.
The airline-owning Industrial Select Sector SPDR ETF is up 53% from the March low. That makes it the third-best of the 11 S&P 500 sectors from the low. And it's far outpacing the S&P 500's 43% gain from the low.
Some of the S&P 500 airlines' moves are real head-turners. Shares of both United and American Airlines more than doubled since May 15. So by selling his shares, he's missed out on rallies worth nearly $500 million and $400 million apiece since since May 15.
And Buffett's miss on Delta hurts even more as he held more shares. The value of the nearly 72 million shares he sold jumped more than $1 billion since May 15.
Who Is Buying S&P 500 Airlines If Buffett Is Selling?
If Buffett, a giant, patient investor, is selling S&P 500 airlines, who's buying?
Hedge funds and institutions were early buyers of the U.S. Global Jets ETF, Holmes says. The ETF is part of a popular two-part trade where investors short shares of a weak airline while buying the ETF. It's a trade to express the idea that air travel will survive, even if some individual airlines falter.
More than half the flows into the airline ETF came from hedge funds when it was launched in 2016. Another 25% of money came from value investors and the rest from individual investors. But that flipped this year.
Roughly half the flows to the fund are now coming from mostly younger, individual investors, Holmes said. The coronavirus stock market spurred interest by younger investors to open online brokerage accounts.
And while Buffett saw pain in airlines, these young investors saw opportunity. American and Delta are both top five holdings by Robinhood account holders, says Robintrack. What should you look for if you're thinking about buying airlines stocks now?
It's certainly possible Buffett will ultimately prove right. He focuses on the long term. And while signs of recovery are appearing, a full airline recovery could be years away. Analysts think United will only earn $8.15 a share in 2023, which is a third of what it made in 2019. And all the major airlines stocks are still down 29% or more this year.
"The airline business — and I may be wrong and I hope I'm wrong — I think it changed in a very major way and it's obviously changed in the fact that four companies are each going to borrow perhaps an average of least $10 billion or $12 billion each," Buffett said.
What Bailing Out On S&P 500 Airlines Cost Buffett
| Company | Ticker | # Shares Berkshire Held Prior To Selling (Millions) | YTD Stock % Ch. | Stock % Ch. From May 15 | Missed Gain From May 15 ($ Millions) | Composite Rating |
|---|---|---|---|---|---|---|
| Delta Air Lines | 71.9 | -41.6% | 78.0% | $1,076.1 | 22 | |
| Southwest Airlines | 53.6 | -29.3% | 59.9% | $767.6 | 20 | |
| United Airlines | 22.2 | -51.9% | 112.9% | $498.2 | 11 | |
| American Airlines | 41.9 | -35.2% | 105.6% | $400.2 | 4 |
Source: IBD, S&P Global Market Intelligence, based on most recent public filings
Follow Matt Krantz on Twitter @mattkrantz
