Buffett’s Latest Letter Shows Contempt For Bonds, Portfolio Shift From Airlines To Pharma

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during the … [+]

Warren Buffett writes a letter to his shareholders every year. He’s been doing it for decades. Though many of Buffett’s broad messages don’t change. Each year there are some nuggets on his take on the markets and investing. Here are some of the key points from this year’s letter.

As much as equity markets may be expensive, Buffett is no fan of government bonds. He says, “Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at year-end – had fallen 94% from the 15.8% yield available in September 1981?” He believes fixed income investors “face a bleak future.”

Unlike equities, returns to bond investors are generally easier to forecast. Prices don’t move all that much so the yield is a good indicator of future return. Also, negative yields in Europe are not a good sign. You are destined to lose money in many government bonds today in Buffett’s opinion.

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Buffett was relatively fast to dump airline stakes during the pandemic, and the company has written down their Precision Castparts stake, which makes parts for airlines. In their place some pharma holdings have increased (Merck MRK -2.7%, AbbVie ABBV +0.4%) as have positions in the Japanese conglomerate Itochu and Verizon VZ -2.1%. Though perhaps more noteworthy is what has remained.

Berkshire continues to hold large positions across many financial firms from Goldman Sachs GS -2.1% to Visa. The company also has large stakes in Coca-Cola and Apple AAPL +0.2%. Of course, these equity holdings tend to move around more than Berkshire’s acquired businesses in insurance, rail and energy to name a few.

Berkshire will hold its popular shareholder meeting on May 1st as a streamed online event. This gives Buffett more opportunity to expand on the themes of the letter and answer audience questions.

Unusually, this year it will come from Los Angeles rather than Omaha and Charlie Munger will attend, having missed last year’s event.

Simon is the author of Digital Wealth and Strategic Project Portfolio Management. He has previously served as Chief Investment Officer at Moola and FutureAdvisor, both

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