Berkshire Hathaway: Covid-19 and the Great Disconnect
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren Buffet, 1986 Letter to Shareholders.
This investment strategy had proven powerful for Berkshire Hathaway, Inc. It had transformed a bad textile company into a diversified investment company, ranked as the 12th largest company in the world in 2019, right behind Apple. It had made Warren Buffet a billionaire and countless of his shareholders millionaires. At the end of 2019, Berkshire’s shareholders included Fidelity Investments and the central bank of Norway. The company’s stock was considered the number one retirement stock in America. Amid the 2020 coronavirus pandemic, U.S. financial markets crashed at record speed (–35% between February 12 and March 20, 2020), including the biggest single-day drop ever of –12.9% on March 16, 2020, eclipsing the record of October 28, 1929. Expected to be greedy when others are fearful, Buffet was a net seller of stocks and remained on the sideline during that period. His inaction, combined with an unusually cautionary tone at the annual shareholders’ meeting, triggered heavy criticisms. Some of his loyalists sold their stocks. As he was approaching his 90th birthday, many started to wonder whether Warren Buffet had changed his time-tested strategy. Was he disconnected from reality? Was he fearful himself?
• Understand the connection between values, strategy, and performance in the long run.
• Ponder when it might be time to retire a time-tested strategy and a longtime CEO.
• Understand the power of the buy-and-hold investment strategy, as opposed to frequent trading.
• Use quantitative and qualitative analysis to assess a situation where an apparent disconnect between expectations, behaviors, and performance may call for a change in leadership and/or strategy.
Position in Course This case is suitable for students in undergraduate- and graduate-level courses on strategy, leadership, and finance/ investments.
NOTE: The case contains some quantitative data that can be used to do some basic calculations in order to emphasize the importance of the disconnect between shareholders’ expectations and Warren Buffet’s behavior during the historic sell-off; i.e., his missed opportunity to buy back more Berkshire shares while other institutional and conservative investors did