2021: Why did Buffett sit on his hands during the March 2020 crash?

BECKY QUICK: More specifically, beyond the airlines, though, just the idea of — and this came from several questions, too, including one from Chris Blaine (PH). Just —

“You spent years accumulating cash, insisting you had your elephant gun ready. The March 2020 listed equity selloff came with promises from the U.S. government that they would do what it takes. Yet, you sat on your hands. Please help me understand what I missed.”

WARREN BUFFETT: I didn’t get quite the last part. What was the final question?

BECKY QUICK: Just, “Please help me understand what I missed.” Why — why didn’t you use more of the cash at hand?

WARREN BUFFETT: Oh. Well, we have about — our cash on hand has been about 15% of our values — of our businesses — and that’s a healthy chunk.

And I say it’ll never get below 20 billion, but we’re going to raise that number, because it’s just the size and importance of Berkshire is —

But we could have deployed 50 or 75 billion, and right before the Fed acted. I mean, we hit a point where the calls were — two calls came in. But there was two or three days that nothing could happen. When (Federal reserve Chair) Jay Powell acted as he did, that was incredibly important — I mean, I should say the Fed acted as they did — but they moved with a speed and a decisiveness on March 23rd that changed the situation where the economy had stopped.

The government bond market was even disrupted. Berkshire Hathaway probably could not have gone out with a debt offering the day before.

It didn’t get a lot of publicity at the time, but there was a run on money market funds, a very substantial run. And — if you look at the numbers — daily numbers on that — it was a repeat of September 2008.

And this time — I give great credit to what (then-Federal Reserve Chair Ben) Bernanke and (then-Treasury Secretary Henry) Paulson did — but this time, the Fed knew that saying whatever it takes, and saying it and demonstrating it — which they did on March 23rd — they took a market where Berkshire couldn’t sell bonds on the day before and turned it into one where Carnival Cruise Lines or something (laughs) could sell it a day or two later.

And there was, you know, this record issuance of corporate debt. And companies losing money, companies who were closed, whatever. It was the most dramatic move that you can imagine.

And at the time, as I remember the chairman saying, you know, how about a little help on the fiscal front?

And then Congress acted very, very big. Again, in 2008 and ’09, they argued about, you know, we don’t want to give any money to those dirty banks and all that sort of thing. But this time, there really wasn’t anybody to blame. So, they saw what was necessary, and Congress responded.

So, you had fiscal and monetary policy that responded in a way that was incredible. And it did the job. And it did, I think, it did a better job (laughs) than either the Fed or the Treasury or anybody expected.

I mean this economy right now is — 85% of it is running in super-high gear. And people can’t — you know, and you’re seeing some inflation and all of that. It’s responded in an incredible way.

And we learned something out of 2008 and ’09, and then we applied it. But I don’t think it was a sure thing that would happen.

And the one thing about Berkshire is we never want — we don’t want to depend on anybody. We’re not a bank. We can’t go to the Federal Reserves if we need money.

And we’ve got to be sure that, under any circumstances — any circumstances — we can’t solve nuclear war, and maybe we can’t, you know — but, you know —

Blanche DuBois, if you remember, in (Tennessee Williams’ 1947 play) A Streetcar Named Desire, said, “I depend on the kindness of strangers.” You can’t depend on the kindness of your friends if things have really stopped. I mean I’ve seen that in several different places.

And we were start — we were seeing it on March — in the middle of March. Everybody was drawing down the credit lines. The banks did not expect that. They just weren’t sure they were going to be able to draw down their credit lines ten days later. And so, they just drew them down, and they took the money out of money market funds.

We got very prompt — I give great credit, on both the monetary and fiscal side, to what was done.

But I didn’t think it was a sure thing it would happen. And I didn’t know how it would be implemented. And it’s worked — I think it’s worked better than just about anybody has expected. And I think — well, you’re seeing it now.

You know, Charlie’s got some views on this, too. So, we shouldn’t leave him out of it. (Laughs)

CHARLIE MUNGER: Well, it’s crazy to think anybody’s going to be smart enough to husband money and then just come out on the bottom tick in some crazy crisis and spend it all.

There always is some person that does that by accident. But that’s too tough a standard. Anybody expects that of Berkshire Hathaway is out of his mind.

WARREN BUFFETT: Yeah, Charlie and I never were very good at dancing. But we really can’t do that dance. (Laughs)

CHARLIE MUNGER: No, no, we can’t. And by the way, almost nobody else can, either.

WARREN BUFFETT: Not with tens of billions.

CHARLIE MUNGER: No.

WARREN BUFFETT: Or hundreds of billions.

But it’s worked out.

Well, we forgot to show one of the financial sides, actually, if you go back to the balance sheet. But we did buy in, in the first — you’ll see the shares outstanding if we go back to — what is it, E3?

BECKY QUICK: E2. They look —

WARREN BUFFETT: Slide.

BECKY QUICK: E2.

WARREN BUFFETT: Pardon me?

BECKY QUICK: I think it’s E2, isn’t it?

WARREN BUFFETT: Well — the balance sheet. Yeah, there it shows the shares outstanding at the bottom. And we have — we have — we spent about 25 billion in the first quarter, and more money since.

And we’ve — it’s the best thing — we can’t buy companies as cheap as we can buy our own. And we can’t buy stocks as cheap as we can buy our own. So — and we’ve been able to do that with a fair amount of money.

But looking back, I mean if you — you know, definitely, we could have done better things. (Laughs)

We would have sold the — we would have sold airlines and cut back on banks regardless.

Whether we should have bought something else at the same time is another question.