The usually-cheery Warren Buffett didn’t turn up during the weekend’s Berkshire Hathaway shareholder meeting as he refused to enter the market despite sitting on a $137 billion cash-pile. | Source: Johannes EISELE / AFP

  • Warren Buffett is not interested in entering the U.S. stock market anytime soon.
  • In 1929, it took 22 years for stocks to recover to record highs, and Buffett may be seeing a similar trend.
  • Buffett started his investing career in late 1950s, after the market drought ended.

Warren Buffett sold his stake in major U.S. airlines and expressed his unwillingness to spend $137 billion in cash anytime soon. The Oracle of Omaha does not seem to trust the ongoing stock market recovery and sees little value in the market for acquisitions.

Buffett publicly selling shares in top companies and admitting an investment mistake is a rare sight. He is widely considered to be the greatest investor in recent history, as he outperformed the stock market for 47 years.

But, there were dark times in the U.S. stock market during past recessions. In 1929, as an example, it took 22 years for stocks to recover beyond record highs. It is possible that Buffett sees a similar gloomy trend unfolding in the next several years.

U.S. stocks have never been more expensive according to the Buffett indicator | Source: AMG Twitter

Buffett does not see stock market recovery in the medium-term

In April, Berkshire Hathaway sold its stake in American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines. Buffett described the decision to invest in the four companies as a “mistake.”

Throughout his career, Buffett consistently emphasized that he does not invest in the stock market with the intent of selling it in a few years time

The investments Buffett makes in the stock market are often set for at least 5 to 10 years.

Quoted on the book “Creating a Portfolio like Warren Buffett: A High Return Investment Strategy,” Buffett famously said:

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

Berkshire’s closure of positions in the airline industry signals that Buffett does not see recovery in the next 5 years, possibly in the next decade.

Source: Andrew Ross Sorkin

Buffett merely could be pessimistic about the airline sector and remains neutral regarding other industries.

Either way, Berkshire Hathaway does not see value in the market. Buffett and his partner Munger consistently said that they do not see an attractive company for a large-scale acquisition.

Is Buffett predicting a 1929-like Drought?

At the annual Berkshire Hathaway shareholders meeting in Omaha, Buffett set a focus on discussing the trend of the stock market from 1929 to 1951.

During the 22-year span, the U.S. stock market failed to recover back to its record high as it saw a slump in employment and economic activity.

He stated:

Take the years from 1929 to 1951, bear in mind the country was only 140 years old when this started. That’s 20 years out of the 230-year lifetime of our country that was flat out a time of no economic growth and no feeling by people in terms about the wealth of the country.

Buffett may be seeing a 1929-esque market draught. He specifically re-emphasized that Berkshire will remain as a “Fort Knox,” protecting its capital.

He suggested that worse outcomes from the economic consequences of the coronavirus pandemic could affect the stock market. To safeguard his own companies, Buffett prefers to hold onto the $137 billion cash pile than to spend it in the coming months.

Source: Sven Heinrich

In the 1930s and 40s, Buffett was still early on in his investing career, working under his college professor Benjamin Graham. It was not until 1950s that Buffett started Buffett Partnership Ltd and started to aggressively invest in the stock market.

Coincidentally, the investment firm was established after the 22-year stock market slump came to an end, in 1951.

This article was edited by Samburaj Das.