Warren Buffett: Always Choose Stocks Over Bonds

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alex123711
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Warren Buffett: Always Choose Stocks Over Bonds

Post by alex123711 »

Warren Buffet doesn't like bonds?

https://www.youtube.com/watch?v=idVreXf6W18
theorist
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by theorist »

Berkshire holds a lot of treasuries:

https://www.fool.com/investing/2023/03/ ... hand-over/

So he likes them for some purposes!

Each investor (and company) will be best off reasoning through what they need — and not worrying about what others, with their own goals and obligations, do.
Marseille07
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by Marseille07 »

alex123711 wrote: Mon Jun 05, 2023 9:38 pm Warren Buffet doesn't like bonds?

https://www.youtube.com/watch?v=idVreXf6W18
He doesn't. He holds T-bills but I don't believe he holds intermediate or long bonds.
Johm221122
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by Johm221122 »

alex123711 wrote: Mon Jun 05, 2023 9:38 pm Warren Buffet doesn't like bonds?

https://www.youtube.com/watch?v=idVreXf6W18
For long term money.But he is an active investor and uses T-bills to hold cash.

My personal circumstances are different than his so I take what he says with a grain of salt
Fclevz
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by Fclevz »

Marseille07 wrote: Mon Jun 05, 2023 11:25 pm
alex123711 wrote: Mon Jun 05, 2023 9:38 pm Warren Buffet doesn't like bonds?

https://www.youtube.com/watch?v=idVreXf6W18
He doesn't. He holds T-bills but I don't believe he holds intermediate or long bonds.
I saw a recent interview where he said that Berkshire’s average treasury maturity was about 4 months.
Marseille07
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by Marseille07 »

Fclevz wrote: Mon Jun 05, 2023 11:29 pm I saw a recent interview where he said that Berkshire’s average treasury maturity was about 4 months.
That is interesting because his famous 90/10 portfolio suggested Short-Term Government Bonds, which are typically 1~3 years till maturity.

I suspect he might have meant T-bills; he's certainly holding much shorter than his own advice.
JSPECO9
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by JSPECO9 »

He specifically said long-term bonds are not good investments, especially at the low rates given at the time. I think most should agree with this. Stocks for the long run, short-term bonds and t-bills for the short-term.
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JoMoney
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by JoMoney »

JSPECO9 wrote: Tue Jun 06, 2023 6:49 am He specifically said long-term bonds are not good investments, especially at the low rates given at the time. I think most should agree with this. Stocks for the long run, short-term bonds and t-bills for the short-term.
:thumbsup
He repeated several times "long term bonds" and "at current rates". To describe that as "always" is pretty disingenuous, especially considering you can find quotes from Buffett talking about the times he bought long term bonds in the 80's. Further, his example portfolio for passive investors that he's said was laid out for the bequest of his wife was: "Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund."
https://berkshirehathaway.com/letters/2013ltr.pdf
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
toddthebod
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by toddthebod »

If I had enough money that I was guaranteed to never run out, and I could buy whatever I wanted at any time forever, I would invest my savings more aggressively, too.
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by nisiprius »

He doesn't like "bonds," no. But things he does say are frequently distorted when relayed by others. For example, he never said "volatility is not risk," he said "volatility is far from synonymous with risk." Less catchy but quite different.*

One point of confusion is that officially, US Treasury "bonds" specifically means 20- and 30-year securities. 2 to 10-year securities aren't "bonds," they're "notes." In investment writing, particularly journalism, sometimes "bonds" means "Treasury 'bonds,'" and sometimes it means "fixed-income securities broadly."

Another point of confusion that is his objection to bonds is, specifically inflation risk. And if you pay careful attention to his actual words, he often qualifies his disliked bonds with phrases like "currency-based." In other words, it is clear that he's talking about nominal bonds, not TIPS. Well, TIPS do exist. I'm no dedicated Buffett student, but I don't remember his ever saying anything against TIPS--I don't think he has mentioned them one way or another. Here is an example of what he did say; I've underlined some things.

2011 letter to shareholders
[one of three major investment categories is] Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur.... Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire.

...Under today’s conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be.
Some other things to keep in mind about Warren Buffett:

1) His mentor, Benjamin Graham, wrote in 1971 that "the investor should never have less than 25% or more than 75% of his funds in common stocks." Unlike Buffett's shareholder letters, Graham specifically intended this as advice to individual investors. (And for the record, 1971 was two-thirds into a terrible period for bonds, and a period of high inflation, so he wasn't saying this during some golden age for bonds).

2) When CEOs speak to the public, never assume that you are the intended audience. It may be intended, for example, to sway Congress to do something. And never assume it is free from self-interest. It is an extreme example--I believe Buffett is more honest than this--but a recent biography of "bond king" Bill Gross makes it clear that Gross was loudly dissing TIPS as terrible investments at the same time that he was snapping them up for his bond fund.

3) His longest and most detailed writings seem to be the shareholder letters, and he is explaining to shareholders why his $700 billion company invests as it does. Don't assume that it makes sense for you, personally to invest the same way as a $700 billion company (or a $40 billion college endowment fund or $150 billion hedge fund).


*"Volatility is far from synonymous with risk" is far from synonymous with "volatility is not risk!"
Last edited by nisiprius on Tue Jun 06, 2023 8:42 am, edited 3 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Warren Buffett: Always Choose Stocks Over Bonds

Post by nisiprius »

I thought he'd never mentioned TIPS, but he has:
1999 Chairman's letter
We see the growth in corporate profits as being largely tied to the business done in the country (GDP), and we see GDP growing at a real rate of about 3%. In addition, we have hypothesized 2% inflation. Charlie and I have no particular conviction about the accuracy of 2%. However, it's the market's view: Treasury Inflation-Protected Securities (TIPS) yield about two percentage points less than the standard treasury bond, and if you believe inflation rates are going to be higher than that, you can profit by simply buying TIPS and shorting Governments.
But please, for heavens' sake, do not distort this into "Warren says everybody should buy TIPS and short Governments!"
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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