4 Times Warren Buffett Changed His Mind About Stocks — and Reaped the Rewards
Part of Warren Buffett’s allure is that he does very human things: He lives in a normal house, drinks lots of Coke and eats way too much McDonald’s.
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But his investors are more charmed by the otherworldly gains he has piled onto their net worths over the past 50 or 60 years. According to Motley Fool, the Oracle of Omaha tallied aggregate returns of over 3,600,000% from his inaugural year as Berkshire Hathaway’s CEO in 1965 through the end of 2021.
If nothing else, Buffett is a creature of habit.
He once told HBO that he orders his daily McDonald’s breakfast based on market performance — a bacon, egg and cheese biscuit if stocks are up, a cheaper pair of sausage patties if they’re down or a sausage McMuffin if the market is flat.
Even so, the Yoda of stock investing sometimes changes his mind — and when he does, his instincts are often proven correct. Here’s a look at the rare times that Warren Buffett reversed course and how his U-turns tend to benefit his investors.
Also see 10 genius things Buffett suggests you do with your money.
Airline Investments Gave the Oracle Jetlag
On May 1, 2020, Buffett announced during a virtual address to Berkshire shareholders that he had changed his mind in a big way about American airlines — not the company, the concept. Acknowledging a rare investing miscalculation, albeit one that wasn’t his fault, Buffett lamented buying 10% of four aviation giants — Southwest, American, Delta and United — just before the pandemic decimated the industry.
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No one likes selling in the red, but Buffett made the right call by cutting his losses.
Not only haven’t any of the big four rebounded to anything approaching their pre-COVID highs, but most have barely budged from their spring 2020 rock bottoms.
According to Forbes, every single airline stock fell by double digits in 2022. The best of the bunch was Spirit, which lost only 13% — but Buffett’s former assets American and Southwest fell by 32% and 23%, respectively.
Breaking Decades of Tradition, Buffett Struck Oil
According to Motley Fool, Berkshire never held more than a single-digit stake in energy stocks during all the years of Buffett’s tutelage. That all changed in 2022 when Buffett started dumping money into Chevron and Occidental Petroleum.
In the first quarter alone, the Oracle increased his Chevron holdings from $4.5 billion to $25.9 billion. He continued piling on even more in Q2 until energy represented more than 10% of the firm’s holdings for the first time in Berkshire’s history.
That was during the runup to last year’s historic fuel inflation, which saw prices breach a record-breaking $5 per gallon in the summer, with predictable results for the oil industry. In January, Chevron reported record profits of $36.5 billion for 2022, more than double its profits from 2021 and 36% more than its previous record in 2011.
Occidental profited so much from America’s pain at the pump that it authorized $3 billion in share repurchases and increased its shareholder dividend by 38%.
He Ended a Long Love Affair With Financial Companies Just in Time
Opposite energy on the Berkshire seesaw is financial stocks — and Buffett’s huge investments in the first were paid for by equally massive cuts to the second.
This, too, signaled a rare instance of Buffett changing his mind in dramatic fashion.
Financial companies like credit-rating agencies, payment processors, insurance companies and banks have long been Buffett’s bread and butter. They combined for at least 40% of Berkshire’s holdings for more than 20 years — until 2022.
Last year, Buffett thinned his holdings in the sector to their lowest point of the 21st century — just over 25% — when he offloaded sizable chunks of U.S. Bancorp, American Express and Bank of America, while ditching Wells Fargo, Goldman Sachs and JPMorgan Chase altogether.
According to Reuters, banks and other financial stocks were among the hardest hit by the 2022 bear market, with several of Buffett’s ex-loves taking some of the hardest beatings of all.
As energy soared, finance slumped — and Buffett changed his mind about both just in the nick of time.
His Instincts on Precious Metals Were as Good as Gold
Warren Buffett bought more than half a billion dollars’ worth of shares in a Canadian firm called Barrick Gold in the second quarter of 2020. The moment shouldn’t have made headlines — $500 million is small potatoes by Berkshire Hathaway standards.
But the move raised eyebrows for one reason: Buffett has long been publicly against gold as an unproductive asset that’s never as good as a well-run company. The COVID crisis changed his mind — the Oracle knew that people flock to the yellow metal in times of upheaval and instability. Even so, his brief fling with gold ended just two quarters later when he sold his position in Barrick.
Once again, Buffett’s instincts were correct. Gold prices boomed, but only briefly, and they’ve endured a choppy and inconsistent run ever since late 2020 when Buffett was on his way out.
As for Barrick specifically, its best run in at least five years coincided with the Oracle’s time on board during the pandemic period.
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