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3 Lessons from Warren Buffett's Airline Stock Fiasco

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  • (0:30) - Berkshire Hathaway’s Annual Shareholders Meeting
  • (9:00) - 3 Important Lessons For Value Investors
  • (15:30) - Stocks To Keep On Your Radar
  • (23:55) - Episode Roundup: AAL, UAL, DAL, LUV, UNP, KSU, CSX

Welcome to Episode #189 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

In early May, Berkshire Hathaway held its annual shareholder meeting in Omaha, only this year was a bit different as it all had to be done streaming on the Internet due to COVID-19 shelter-in-place and social distancing orders.

That didn’t make it any less interesting. Berkshire’s Chairman, Warren Buffett, talked for nearly 4 hours.

He also revealed a big portfolio move.

Berkshire Hathaway had sold all of its airline stocks. It owned 4 airlines: American Airlines (AAL - Free Report) , United Airlines (UAL - Free Report) , Delta (DAL - Free Report) and Southwest (LUV - Free Report) .

Buffett indicated that they sold for a loss but he decided to get out of the investment due to the length of time for a recovery in the airline industry from COVID-19.

As he stated, “the world has changed.”

Lessons to Learn from Buffett’s Forays in the Airlines Stocks

1.       Learn from past mistakes. Berkshire owned US Airways in the late 80s and early 90s and took a loss. Buffett hated the airlines for several decades, saying they never made money. Should he have listened to his gut over the last few years when he dove in again?

2.       Watch for changes in the underlying business. A company may no longer be the one you originally bought. Buffett indicated that it would take the airlines years to get back to where they were and he didn’t want to be an owner during that time.

3.       Admit your mistakes. Buffett admitted they had gotten caught in a bad investment. That’s why they moved immediately and he made the call to sell everything. Don’t hang out in a bad investment.

If you can’t buy the airlines, what about other transports?

Berkshire owns a railroad already. But there are several publicly traded railroads investors can get exposure.

Union Pacific (UNP - Free Report) covers the western states, including the big California ports. It also has distribution hubs along the Mexico border. It’s trading with a forward P/E of 19.7 and is still paying a dividend.

What else should you know about lessons from Berkshire’s recent stock moves?

Listen to this week’s podcast to find out.

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