Why Is Warren Buffett Selling Stocks Down Under 10%The Acquirer's Multiple
In their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed some reasons Why Warren Buffett Is Selling Stocks Down Under 10%. Here’s an excerpt from the episode:
Tobias Carlisle: Yeah. Let’s talk about WEB and his kind of perplexing maneuver. So biggest-
Bill Brewster: We’re talking about the Buff dog, for anyone that didn’t understand.
Tobias Carlisle: Yeah, sorry, Warren E. Buffett, W.E.B, web, he’s been very quiet through the most rapid decline in stock market history ever, in the U.S. anyway, in the data that I have. Maybe there was one that was sort of pre-1850, but it looks like the fastest one, faster than ’29, faster than ’87, probably the biggest bounce.
Tobias Carlisle: All he’s done is sell down three stocks. So he sold down two weeks ago, he sold down Delta and Southwest to get underneath 9.9%, which gives him the advantage of not having to file when he moves in them. And then on Good Friday he sold down Bank of New York, ticker’s BK, very, very unfortunate ticker for that bank. You don’t think he’d try for a… It doesn’t make any sense at all.
Bill Brewster: Yeah, that’s odd for a bank too, to not think of that, and why wouldn’t it be BONY?
Tobias Carlisle: Everybody refers to it as BONY, or BONY, why wouldn’t they call themselves BONY? Get that ticker. Nobody else is going to want that ticker.
Bill Brewster: I don’t know that you want the ticker BONY. It’s a little odd.
Tobias Carlisle: But it’s memorable. It sticks in the brain.
Bill Brewster: It is that.
Jake Taylor: It will be a good one for a dating app.
Bill Brewster: Yeah.
Tobias Carlisle: It is odd that Buffett hasn’t bought anything, publicly anyway, and all he’s done is rapidly sell down three things. Now either he’s just working really hard behind the scenes and nobody’s heard anything, which I think we’re going to find out soon. I think he’s probably bought back some stock, he’s probably bought some more of the public stuff that he’s got that he likes. I’ve seen this theory going around that he sold down to get under 9% so he can really take those positions up.
Bill Brewster: These people are idiots.
Tobias Carlisle: He’s just not a stock market operator like that.
Bill Brewster: I’m sorry of you’re promoting the theory, it just doesn’t make sense.
Tobias Carlisle: He’s just not a stock market operator. He just doesn’t try to fool people by fake faking them out in the market. I don’t think that’s happening.
Bill Brewster: No, I think he would, I just don’t… Why would he ever want to buy one single airline? They have always said that they don’t want to do that, so why now do you want to do it? I think they made a bet and the outcome wasn’t what they thought the bet would be.
Tobias Carlisle: But I’m not even at that point. I’m not even trying to work out what he’s doing, I’m just saying if he was going to do that, he’s not going to sell down first.
Bill Brewster: I don’t know, he would do misdirection.
Tobias Carlisle: Do you think so?
Bill Brewster: I think he’s a shark. Oh yeah, oh yeah. Dude, he’s like what? The third or fourth most rich person in the world and everything he’s done his whole life has been about money. If he thought that he could do right for his shareholders by doing a little misdirection, jue play, 100% he’d do that.
Tobias Carlisle: But that sort of stuff, you get to do that once and then everybody else is like-
Bill Brewster: I would want to be a shareholder.
Tobias Carlisle: But once you do that once, everybody’s like, “Well, I know the trick now, so next time you do that I’m going to buy the shit out of that thing.”
Bill Brewster: I guess.
Tobias Carlisle: So you can’t do it. You can’t do it.
Jake Taylor: Sounds more Icahn to me than Buffett, doesn’t it?
Tobias Carlisle: Yeah. It’s stock market operator type stuff, which I don’t think he is. He’s an investor like business investor, that’s what I think of him.
Jake Taylor: Yeah, but I mean if he’s worried about everybody front-running him, I don’t know.
Tobias Carlisle: Wouldn’t you just sell down, get under the nine so people don’t freak out, and then you just bomb out. Go and do something else.
Jake Taylor: What was the total percentages that we were talking about, because we talk about these numbers, but like percentage of Berkshire’s security portfolio, how much did he trim?
Tobias Carlisle: Not much, but the significance of it is just to get under the reporting obligations, and he did that really rapidly, which gives him the option now to sell down at his leisure. You guys notice how I learned that?
Bill Brewster: Leisure. I liked your old way to do that.
Jake Taylor: Leisure.
Tobias Carlisle: Over this next quarter, and I think he reports then in July.
Bill Brewster: But I mean the two that I can think of are Southwest and Delta. So if he wanted to take them out, he would need to come with some sort of tender offer, right? And if he was going to accumulate shares he would get over the 10 and then he’d have to start disclosing it again. I think he just changed his mind on the positions. I bet they’ve been net buyers and I think he changed his mind on that outcome. I don’t know that it’s more complicated than that.
Jake Taylor: That’s probably the Occam’s razor answer right there.
Tobias Carlisle: Yeah, that’s that’s exactly right. That’s what I think has happened. He’s just changed his mind and he doesn’t want to be in them.
Bill Brewster: I mean dude, there’s talk about-
Jake Taylor: He’s allowed to do that, right?
Bill Brewster: Yeah. Well, and think about where they are right now. They’re tapping all their assets for cash, they’re talking about pre-selling miles. I mean they’re going to come out of this heavily indebted. A core part of that thesis is that the balance sheets have been repaired to make it through a recession. This episode completely destroys the thesis. They’re not going to come out strong.
Tobias Carlisle: You don’t think that they’re going to get, not a bailout, what’s the other word for it? It’s repo, except it’s something else. Everything’s got a different name now, like you don’t just call stuff what it is. You’ve got to give it some other name to fool people who aren’t paying attention.
Jake Taylor: Euphemism.
Tobias Carlisle: The euphemism, yeah.
Jake Taylor: It’s a stability enhancing…
Tobias Carlisle: There’s another word. They don’t call them bailouts there, it’s disaster payment, I think that’s what it is. Disaster relief. It’s disaster relief. You don’t think that the airlines get disaster relief?
Bill Brewster: Well, it’s the CARES Act, I mean that’s what it is. But I mean even today Delta is out, they’re leveraging assets that they have that were unencumbered.
Jake Taylor: Sale and leaseback, right?
Bill Brewster: Yeah. And there’s a Bloomberg article about them looking at pre-selling miles, and then on top of all that the rumor is that Mnuchin’s asking for warrants, which was in the act that he can do. So they’re like balking on that a little bit. I mean you have deal guys in the White House, for real.
Jake Taylor: Do you they’re sharks that way? You think they’re going to scalp them?
Bill Brewster: Do I think Donald Trump and Co are sharks? Fuck yes, I do.
Jake Taylor: Okay. Well, hold on though, but what is his actual outcome that he’s looking for? Is it to make money for the U.S. taxpayer, or to get reelected in November? What’s more-
Bill Brewster: That’s how he can get reelected. He can go out and say, “No other president could have done the deal that I did. Look at the deal that I made for the taxpayer. We saved them, we saved the jobs and I made the money. I’m the fucking man.”
Jake Taylor: That does sound like him.
Bill Brewster: Why would they not do that? “I made the best deal ever and look, we even got equity in these airlines and we’re the smartest guys in the world, and sleepy Joe Biden wouldn’t be able to do any of this.” Yes, 100% I think they’d do this shit.
Jake Taylor: Donny from Queens, you’re on the air.
Tobias Carlisle: We’ve turned into this macro political podcast quoth.
Bill Brewster: Oh, Jesus. No, but I don’t think these are just easy bailouts. Look, if you’d stick the screws to small business, that is politically unpalatable. You stick the screws to airlines a little bit, like Chamath or whatever gets on CNBC and starts ranting, and everybody gets a huge boner over it. I mean people don’t want to see these airlines get a huge bailout.
Tobias Carlisle: That cracking comment on the screen, “What a play it would be to spend 60 years being the ultimate investor and finish off your career with a crazy stock operator move.”
Bill Brewster: Yeah.
Tobias Carlisle: Set everybody up for 60 years to cash in right at the end. Pay it. That’s a good line.
Bill Brewster: Slow play. The other thing that Kevin… I’m sorry, I don’t even sight his last name anymore, he’s such a regular-
Tobias Carlisle: Zatloukal.
Bill Brewster: Yeah. He had mentioned on my timeline, he was like, “Well, if he just did a big buyback, that would be pretty awesome too.” And I agree, that’s like the one move in Buffett’s career that he has not done yet. That would be kind of a cherry on top, although I’m sure it would be unsatisfying.
Tobias Carlisle: Sorry, what’s the big move?
Bill Brewster: Just like a big opportunistic buyback.
Tobias Carlisle: Take back’s your private.
Jake Taylor: Single turn.
Bill Brewster: Backed by the Fed. I got that Fed bunny.
Jake Taylor: LBO.
Bill Brewster: That’s right.
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