The why behind Buffett’s latest moves

This week, Berkshire Hathaway boosted its position in United, American and Delta airlines, having initially bought shares in November.

If you were scratching your head about why Buffett is keen on the American airline industry, you weren’t alone.

Read: Red flags for equity investors

In its analysis of the investment, the Chicago Tribune notes that the Oracle of Omaha once scorned the American airline industry as a complete failure, with its volatility and ability to eat up capital. And, presently, the industry could be in for a bumpy ride, what with an expected decline in air travel and potential industry labour disputes. Further, as badly needed technology upgrades are pursued, the capital crunch is sure to continue.

But there’s no denying that the airline industry is a moat — a business with a large barrier to entry and sustainable profits — and the kind Buffett bets on, argues Joshua M. Brown on The Reformed Broker website.

With consolidation, airline companies are quasi-monopolies, he says. And disciplined management, which you can thank for less leg room, up-charges and additional fees for luggage, food and earphones, adds to the bottom line.

Other recent Buffett moves exemplify his love of the moat: he slashed his Walmart stock and further invested in Apple to become its fifth-largest investor, having first invested in the company last year. Why? Walmart’s fighting a losing battle in its competition with Amazon. In contrast, Apple is the ultimate moat, says Brown, as it locks you into an ecosystem of devices and services.

Read: What Golf Town’s troubles say about retail investment prospects

Read the full article on The Reformed Broker here.

Read the Chicago Tribune‘s investment analysis here.

Also read: Advisors bullish on equities: survey

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.