Opinion: Warren Buffett will soon tell us what he really thinks about stocks, investing and the coronavirus pandemic -- by Lawrence Cunningham

I would like to summarise what I thought was important while reading the article,  Opinion: Warren Buffett will soon tell us what he really thinks about stocks, investing and the coronavirus pandemic.

Summary:

Φ First, Buffett has been as vocal during this crisis as he has been in others — and his tune has not changed.  For instance, on February 24, as the pandemic gathered lethal force, Buffett sat for an interview with Becky Quick of CNBC. He called the pandemic “scary stuff,” but said it does not alter his long-term outlook or approach — disciplined fundamental business analysis remains vital.

Φ Buffett drew comparisons to the U.S. stock market crash on October 19, 1987 and the credit market panic of September 15, 2008 — from both of which the world eventually recovered.

† 1987 October 19, Black Money:  is the name commonly attached to a sudden, severe, and largely unexpected stock market crash that struck the global financial market system. In the United States, the Dow Jones Industrial Average fell exactly 508 points, accompanied by crashes in the futures and options markets.

†2008 September 15, Global Financial Crisis: The filing for Chapter 11 bankruptcy protection by Lehman Brothers on September 15, 2008 remains the largest bankruptcy filing in U.S. history, with Lehman holding over US$600 billion in assets.

The bank and financial services firm had become so deeply involved in mortgage origination that it had effectively become a real estate hedge fund disguised as an investment bank. At the height of the subprime mortgage crisis, it was exceptionally vulnerable to any downturn in real estate values.

The bankruptcy triggered a one-day drop in the Dow Jones Industrial Average of 4.5%, at the time, the largest decline since the September 11, 2001 attacks.

Φ In the first of those, Buffett said he had never before seen people more “fearful, economically;” that “the economy is going to be getting worse for a while;” and that frozen credit markets were “sucking blood” from the U.S. economy. Things were no better six months later, when Buffett said the economy had “fallen off a cliff” and a turnaround would take time — but that five years later normalcy would return.

Φ In this current crisis, just as in the 2008-09, it is not only impossible to predict daily market volatility, it is impossible to predict how long it will last.

Φ Berkshire’s survival includes maintaining abundant liquidity, meaning Buffett will not allocate all capital to acquisitions or other investments. That is why Berkshire is also actively adding to its already-large cash position: in early April issuing $1.8 billion of yen-denominated bonds and, following an issuance of a €1 billion European debt offering in February.

Φ One unique difference between the crisis now and in 2008-09: Berkshire is just as frozen as every other company in a paralyzed global economy. As Buffett explained on CNBC recently, the construction industry has been stalled — hurting the carpeting business at Berkshire’s Shaw Industries unit and insulation sales at Johns Manville —and retail has been largely closed, hitting Berkshire’s businesses from Dairy Queen to See’s Candies.  Yet again stressing the long-term over the short term, Buffett said: “There’s always trouble coming.  The real question is where are those businesses going to be in five or 10 years.”

Φ “A major catastrophe that will dwarf hurricanes Katrina and Michael will occur — perhaps tomorrow, perhaps many decades from now. “The Big One” may come from a traditional source, such as wind or earthquake, or it may be a total surprise involving, say, a cyberattack having disastrous consequences beyond anything insurers now contemplate.”