There was a big surprise at the recent Berkshire Hathaway annual meeting.

Company Chairman Warren Buffett was unenthusiastic. He said the future is bright, but he didn’t sound upbeat about the near term.

He’s worried about the current crisis. That’s different than his attitude in 2008.

He was excited about stocks then. He even shared his view in The New York Times in a piece titled: “Buy American. I Am.”

While his words are important, as always with Buffett, we learn more from his actions. Probably the most significant action to consider is his recent inaction.

Buffett controlled $137 billion in cash at the end of March, $10 billion more than he had at the beginning of the quarter.

As stocks fell, Buffett didn’t buy. He was selling.

We know some of the shares he sold ended up in accounts at Robinhood. It’s a no-commissions broker that’s a favorite of millennials.

Investors need to ask: Would you rather follow Buffett or the individual investors at Robinhood?

This question offers insight into the current market rally.

Buffett Wants out … These Investors Want In

At the end of 2019, Buffett owned significant stakes in all major U.S. airlines.

His position included 11% of Delta Air Lines, 10% of American Airlines and Southwest Airlines, and 9% of United Airlines. These shares cost over $7 billion.

By the beginning of May, Buffett was out of these airline stocks.

He said: “We made that decision in terms of the airline business. We took money out of the business, basically even at a substantial loss. We will not fund a company … where we think that it is going to chew up money in the future.”

If Buffett wants out, it’s reasonable to wonder who would want in.

A small exchange-traded fund (ETF), the U.S. Global Jets ETF (NYSE: JETS), went from about $50 million in assets at the beginning of the year to more than $600 million.

The chart below shows the number of shares outstanding (the purple line) versus the price of JETS (the blue line).

As you can see, the amount of shares issued climbed sharply as Buffett was dumping the fund’s largest holdings and the price of JETS was falling:

JETS Plummeted as Demand for Shares Soared

Investors need to ask: Would you rather follow Warren Buffett or the individual investors at Robinhood?

(Source: Standard & Poor’s Capital IQ)

That means U.S. Global had to create more shares of JETS to meet the demand of individual investors.

According to Robintrack, a website unaffiliated with the free broker, about 250 Robinhood customers owned shares of JETS in February. Now, more than 22,000 own JETS.

Warren Buffett is holding a record amount of cash. Individuals are bottom fishing. They’re hoping to benefit from a rebound.

Personally, I would follow Buffett’s lead.


Michael Carr, CMT, CFTe

Editor, Peak Velocity Trader

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