I’ve deliberately avoided buying airline stocks for years, but I wonder if I am just leaving money on the table…
Is It Time To Jump Back Into Airline Stocks?
Richard Branson once said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.” I’ve long avoided dabbling in airline stocks, a cyclical and volatile industry with low profit margins, but I’m reconsidering that long-held reluctance.
Some background first. 15 years ago or so, I bought United Airlines stock, held onto for about six months, and sold it for a tidy profit. In 2011, I bought American Airlines stock and lost my shirt when it declared bankruptcy. And I was doubly foolish because had I just held it instead of selling it for pennies on the dollar, I would have made a very tidy profit since AA ended up not canceling existing stock during its reorganization.
That has been the extent of my investment in airline stock…
Last Monday, I told my wife that I was thinking about buying some United stock ahead of the release of its earnings report. I had no insider info, but I figured United would beat profit expectations and we could make a little money, even if we just day-traded it.
I got busy and forgot about it, but I was correct and United did beat profit expectations. In fact, UAL jumped 15% and continues to climb. It’s up again today and some analysts are betting the stock will rise to $80/share.
I also had an inkling to buy Spirit Airlines on Friday, which is up 61% so far today. I figured it would get a reprieve on its financing, which of course would have resulted in a tidy payoff today. And I do study the airline industry closely and so my knowledge about these companies is far more informed than other companies I might invest in.
But I do hesitate. There’s not just a “hunch” or basis of knowledge behind such an investment, but also emotion, which strikes me as a dangerous investment metric (short of, perhaps, buying a house). I also don’t want to go Tim Dunn on you and start pushing the airlines I invest in because I have a pecuniary motive.
Maybe the simplest thing is just to keep my “retirement” money in the fund that I have it in…that fund is stable, tends to grow, and I guess most importantly I don’t really think about it. I fear that trading stocks more actively is a time-drain and becomes addictive behavior, which I would want to avoid.
Bottom line: I am considering it, have not done anything yet, and would welcome your thoughts…I do love the varied opinions of the Live And Let’s Fly community.
Respectfully, this does not seem like a good idea: (1) your intuition about investing on emotion strikes me as entirely correct; (2) seems like there is a long history of airline bets turning out poorly; (3) in your place I would be constantly worried about having access to insider information — even things like embargoed program changes and the like; and (4) even if it doesn’t cross a line, it’s just not a good look to have a financial stake in companies you frequently write about and purport to be objective about.
Excellent points indeed.
I have heard of a stock broker firm titled : “Greed , Gamble , Hunch , and Rumor , Inc.”
You seem to have some good hunches but day trading is risky. If you consider it as gambling though then you think of the money as already gone so why not?
Because I cannot afford to be stupid.
It sounds like you just want to bet on short-term gains. You know that’s risky, but I guess have fun with it. UA’s stock could have gone down 15% if they missed. It seems like long-term, the only people who benefit from holding airline stocks are the executives themselves at the airline.
Unless you get a discount when you buy a tix on that airline it does not seem worth it?? Cruise lines give an onboard credit if you own their stock!!
Both major airlines in Japan give you discount vouchers for holding shares, with the number of vouchers determined by the number of shares you hold. They can only be used for domestic flights and they set limits on availability, but it makes it worthwhile to have a few hundred shares on hand because the discounted shareholder tickets get 100% mileage and status points.
I would worry about an accusation of insider trading. Remember Martha Stewart.
You mean Camp Cupcake which in her own words is like college?
But no need to panic, Tim Dunn would be there way before Matthew would.
Nothing to worry about as he is not an officer for any airline and I don’t think any of his family members are. He would not get any inside info unless someone as an officer at an airline shares info with him and that person would be penalized first. Martha Stewart was plain stupid and got inside information from someone that shouldn’t have shared with her and she acted on that information.
Her crime was that she lied. The inside trading was dismissed.
It sounds like there would be safer and lbetter places to invest. For every hunch or intuition that pans out, there are others you may miss or did not forsee as large a downturn or hit which may severely impact the investment negatively.
If you don’t have time, leave it to the pros. I gave up trying to buy and sell stocks myself a long time ago. Many times people ask me how the stock market is and I simply haven’t looked at it for over 6 months. Unless you have the time to do it, don’t try to do it.
People spend their whole lives earning money but too few take the time to learn how to manage it. Spend the time to be that pro (or at least semi/pro) and save those years and years of compounded fees you pay these “ pros”.
Or just get lazy and put it in a self directed Vanguard fund that mimics the market. Pros rarely beat that when considering fees.
I just sold my Delta/United shares I picked up in early 2022 & am fine leaving it at that tbh
Absolutely NOT. UAL is still down 18% in the past 5 years. S&P 500 stocks (VOO/SPY) is up 94% in the same time frame. Investing in S&P 500 is way better choice because you are investing in 500 companies, not 1 and also much less stressful when it comes earnings reports. Thank me in 20 years 🙂
Buy a low cost S&P 500 fund like Vanguard and don’t look back. Easiest way to get rich over time.
In Hawaii I’ve met a few of those , and now they are afraid to sell any .
There is an easier way. It’s called inheritance
You would be better informed than most on short term swings. Your pulse on demand is probably better than many. Small bets in call options could be a way to express that if it’s to the upside and get leverage to the move.
But it can become very time consuming and addictive.
Used to cover airline stocks – what everyone else is saying above is true. Go S&P 500 or in an active mutual fund and forget about it. If you aren’t spending your day job underwriting investments, you’re not spending enough time thinking about an individual stock. Diversify and protect your downside risk.
I have nothing in airlines except for the small % held by a few index funds. I enjoy taking a punt on individual stocks, but they come out of my limited “speculation” budget. Berkshire could buy any airline with a very small portion of their cash holdings. They don’t. Good enough for me.
Berkshire owned the ‘big 4′ during the mid 2010s and dumped them spring of 2020.
Buffet himself made the call – investing post consolidation during the Parker ”never lose money again’ days and getting out in April/May 2020. That was after saying in 2007 he wouldn’t touch the capital destruction of the industry.
He said in 2021 had he not sold they may not have been given the bailouts they ultimately received.
https://www.forbes.com/sites/joewalsh/2021/05/01/buffett-doesnt-regret-selling-airline-stocks-last-year—and-he-still-doesnt-want-to-invest-in-them/
Good points. And, Buffet can play timing opportunities, I (and 99+% of investors) would be fool to try.
I work for a major airline, and I have a hard and fast rule against holding airline stock. They are fun companies to work for, especially if you value the benefits, and it is a fascinating industry, but it does not tend towards profitability. I would stick to index funds…
And, as an employee in the airline industry, you have really strong incentive not to invest in their stock. It’s simple diversification. Enron employees should not have had Enron stock. If it hits the fan, you have no job and worthless stock. If your employer offer less-than-market stock purchases, you buy and dump as soon as permitted. And, yes Buffet owns a lot of BRK, but thinking this makes it a good idea as a general recommendation is like thinking quitting college like Gates is a good idea.
Should have bought SkyWest stock in 2013 for $15.60. Now it’s $95.58.
If available now , the best selling newspaper on Wall Street would be Next Friday’s edition , bought today .
Opps, meant 2023.
And what will happen in 2025 ?
If you are going to buy stocks, do it for the dividends over the long term. Don’t do it because you see the share price going up right now.
I strongly disagree. You want appreciation over the time you own the stock, taking into account tax implications. There is nothing about appreciation through dividends that is superior to appreciation through stock price. Further, you want the company to buy back stock (increasing share price appreciation) over dividends, as it provides tax advantages that increase net gain over holding period. I assume your cap gains are LT, and there are not large changes in tax rates.
You want both, of course. My point is that you shouldn’t buy when stocks are rising based on the assumption that they will continue rising. Share prices at any given time are not a good indicator of future value.