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Here’s why one longtime Warren Buffett fan is considering dumping his entire stake in Berkshire Hathaway

The Tell

David Merkel has already scaled back his Berkshire Hathaway position

Warren Buffett is sitting on lots of cash.


Photo by Alex Wong/Getty Images

David Merkel, the longtime investor behind the Aleph Blog, still holds a stake in Berkshire Hathaway, but it’s smaller than it used to be — and it could get even smaller.

“I may sell off the rest of my holdings,” he wrote. “The question is whether Buffett has an outdated view of how much the market could fall, given the skittish attitudes of economic-policy makers.”

His primary beef with Buffett is how he’s dealt with the coronavirus crisis.

“I sold half of my holdings in Berkshire recently, after I learned that Buffett did nothing during the recent fall in the stock market,” Merkel wrote in a blog post on Tuesday. “Market values are relative, and there were certainly decent values to be realized in late March. You wouldn’t blow the whole wad, but surely you should have bought something.”

Instead, Berkshire
BRK.A,
-0.61%

BRK.B,
-1.04%

did the exact opposite, at least with its airline positions. Buffett helped send the industry into a downward spiral when he announced earlier this month that Berkshire unloaded its entire stakes in U.S. airlines America Airlines
AAL,
-4.45%
,
Delta Air Lines
DAL,
-4.45%
,
United Airlines
UAL,
-5.04%

and Southwest Airlines
LUV,
-3.25%
.

One group of traders wasn’t complaining. According to S3 Partners, short sellers in the airline sector made $188 million in mark-to-market profits in one session after news broke.

As for Merkel, he believes Buffett should focus on the fact that there is a backstop at play.

“The nature of the U.S. economy is that the Fed, and maybe the Treasury, or Congress, may borrow money to bail out those in distress, partly because the U.S. economy is so indebted, that they can’t let debts be liquidated, lest we have a depression,” he wrote. “Thus, low interest rates, low marginal productivity of capital, and low GDP growth.”

And yet Berkshire sits on a record cash pile of more than $137 billion, something that Merkel doesn’t see changing anytime soon. He explained that Buffett should have plenty of attractive options during these turbulent times that could benefit investors, such as paying dividends, increasing buybacks or broadening his hunt for acquisitions.

Nevertheless, “I don’t think Buffett will change much,” he wrote.

Read:Warren Buffett says it took him 89 years to experience something like this

Merkel isn’t the only one losing patience with Buffett.

Bill Smead, who counts Berkshire Hathaway as a top 10 holding in his Smead Value Fund, expressed his frustrations to Barron’s last week over Buffett’s ”maximum defense” approach.

“Berkshire needs an activist,” he said, pointing to the slowing pace of Berkshire’s share buybacks. “We don’t own the stock for capital preservation. We own the stock to create wealth.”

And that stock’s performance of late isn’t helping. Berkshire’s Class A shares have lost more than 23% this year while the S&P 500
SPX,
-2.05%

is down by about 11%.

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