The Oracle of Omaha: Liftoff or Crash Landing?

The Oracle of Omaha: Liftoff or Crash Landing?

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Abstract

It was April 15, 2020, and Berkshire Hathaway CEO Warren Buffett, colloquially known as the “Oracle of Omaha,” was sitting in his office in downtown Omaha, Nebraska. He had been discussing with his Berkshire partner Charlie Munger the status of his investment in Southwest Airlines. 1 Berkshire Hathaway currently owned a 10.3% stake in Southwest (Isidore, 2020), the world’s largest low-cost airline carrier. The coronavirus pandemic sweeping the world was decimating the revenues for airlines on a global basis, and Buffett was concerned about the aviation industry’s future. Since the pandemic began, people had been avoiding air travel vigorously due to guidance from health authorities amid virus fears, and the last week of March had seen a 55% decline in commercial flights compared to the same week in 2019 (Weber, 2020). Buffett was virtually hosting the annual shareholders meeting for Berkshire Hathaway in a couple of weeks, and the airline industry was sure to be a topic of conversation due to its recent financial troubles. Should Buffett hang on to his stake in Southwest, and perhaps buy even more shares due to the heavily decreased stock price? Or should he divest his stake in Southwest and cut his losses? He had a big decision to make, and it was surely one that Berkshire’s investors would be keenly listening to.

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