Warren Buffet Turns 90! (stocks vs. bonds)

On the 90th birthday of Warren Buffet, someone who’s generally thought of as one of the greatest investors of our time, I thought I’d take an opportunity to talk about … bonds.

While U.S. Treasuries are NOT a preferred path towards wealth accumulation, Buffet’s most recent 2019 SEC Form 10-K (PDF file ) filed and available on his website ( www.berkshirehathaway.com ) does shed some light.

Here is an excerpt from p41 of 132 of the 2019 SEC Form 10-K (PDF file ) :

We continue to hold large balances of cash, cash equivalents and short-term U.S. Treasury Bills. While short-term interest yields in the U.S. were higher in the first half of 2019 compared to 2018, interest rates declined during the second half of the year. Accordingly, earnings from such balances will likely be lower in 2020 than in 2019. We believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments

Emphasis MINE as HIS focus is on safety and liquidity which helps him fund other operational functions of his organization (as well as sleep a bit better at night).

Bonds of all different maturities serve a purpose. These days, with such low interest rates (30yr US Treasuries closed Friday @ 1.50%), they are NOT as helpful in as far as portfolio RETURNS, as they used to be.

They should continue to be part of an investment conversation and one’s overall portfolio construction.

As the month comes to a close Monday afternoon, there are some specific considerations for professional money managers and I thought I would pull the curtains back a little bit on conversations I’ve had into months end.

Given the OUTPERFORMANCE of stocks in August — the S&P is up approx 7.25% while  the Bloomberg Barclays US Treasury 20+ year Total Return Index (unhedged) is DOWN about 5.5% — there’s an interesting dynamic for consideration.

Cumulative TOTAL RETURNS (gross dividends) for S&P 500 and Bloomberg Barclays US Treasury 20+ Year Total Return (unhedged) month-to-date
( CLICK HERE to enlarge image)

Those funds and portfolios who actively manage in a ’60/40′ (stocks/bonds, balance) fashion, MAY have to sell SOME equities and buy some fixed income securities, simply to stay IN BALANCE.

How significant might this be? Some ‘back of the envelope’ calculations suggest ~$4 tril of funds using this industry standard ’60/40′ allocation target suggests there **COULD** be a potential of upto $40bb rotation FROM stocks TO bonds.

This is only short-term and on this 90th birthday of Warren Buffet, it’s probably more important to think about the bigger picture. There’s an interesting story posted over at Bloomberg Businessweek website (www.bloomberg.com ) which speaks TO this ’60/40′ dynamic.

The 60/40 Portfolio Split Between Equities and Bonds Is Facing Serious Challenge

  • Pros have lots of choices, but for individuals, the best may be to start saving more …

Emphasis MINE. Here’s the link for the entire story for some further reading:

(https://www.bloomberg.com/news/articles/2020-08-28/the-60-40-portfolio-split-between-equities-and-bonds-is-facing-serious-challenge?sref=kqKHqV46 )

Given there are so many choices available and that each of our situational needs is different, it’s best to have this conversation with your Etico representative.

I’d like to leave you with one last interest rate perspective — bonds continue to offer some portfolio ballast and I hope this year-to-date performance visual lives up to that saying where a picture is worth a thousand words:

Cumulative TOTAL RETURNS (gross dividends) for S&P 500 and Bloomberg Barclays US Treasury 20+ Year Total Return (unhedged) year-to-date
( CLICK HERE to enlarge image and see how it is / can be that 20+ year Treasurys are UP nearly 20% YTD while the S&P is up nearly 10%)

THAT is the kind of ‘relative value’ which might even catch Warren Buffets attention from time to time.

In closing, I thought I would end with one of my personal favorite quotes from Buffet:

I checked the actuarial tables, and the lowest death rate is among 6-year-olds, so I decided to eat like a 6-year-old.

I came across this and a few other gems organized over at LPLs research blog . Hey, if you can’t beat ’em, join ’em, and kindly pass the oreos!!

With that in mind, I hope you’ll join US in wishing all the very best TO Warren Buffet on his 90th birthday. Many happy (BOND, stock) returns to us all!

Steven J. Feiss

Managing Director, Fixed Income

Etico Partners, LLC

1795 Rout 9 Clifton Park, NY 12065

Office: (732) 683-9222
Mobile: (914) 450-9668


Meet the Author

Financial markets veteran with more than three decades of experience working with high profile, domestic and international asset managers and trading desks, producing customized and actionable solutions for strategic alpha generation and risk mitigation. Author of a unique daily (6x per week) cross-asset macro market commentary (the BondBeat) to inform and assist INSTITUTIONAL FIXED INCOME investors and trading desks.