Warren Buffett made a huge mistake when he sold his airline stocks.
Arguing such stocks won’t be a good investment for the foreseeable future, he noted, “I don’t know whether it’s two or three years from now that as many people will fly as many passenger miles as they did last year. The future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.”
The odd part is he sold on the fear – when he usually buys fear.
Remember, this is the same billionaire that made fortunes from telling us a “climate of fear is your friend when investing; a euphoric world is your enemy.” And of course, we all remember his advice to “be fearful when others are greedy and greedy when others are fearful.”
However, perhaps he’ll buy back in again now that economies are reopening, and airline stocks are beginning to take flight again.
Plus, “There are ‘flickers of hope’ that demand has bottomed, according to Raymond James. Data from the Transportation Security Administration indicated a slight uptick in travelers passing through checkpoints on May 1, going to a 93% year-over-year decline from a low 96% in mid-April,” as reported by Barron’s.
While we’re not seeing monster gains in airlines just yet, that could soon change.
Over the last few weeks, American Airlines (AAL) ran from a low of $8.25 to $12.50. Delta Air Lines (DAL) popped from $17.50 to $27.47. JetBlue (JBLU) just exploded from a low of $7.34 to $11.56. United Airlines (UAL) ran from $20 to $32.63.
If you bought on the excessive fear that Buffett sold on, you’re doing quite well.
If economies can successfully reopen – and stay open, many of these airline stocks could double, it not triple near-term. The worst may have already been priced into these stocks.