Berkshire & Bonds

Berkshire has been very bearish on bonds for a long time which is really going against the grain of typical insurance companies. Indeed, one of Berkshire’s advantages over other less well capitalised insurance companies is that it could avoid lousy bonds. Buffett has been proven right again. He limited Berkshire’s exposure to bonds in recent years and here they are falling as interest rates rise.

When he bought General Re it was a pivot out of expensive equities. I wonder what Buffett thinks about the changes in interest rates and bond prices and how they will affect future capital allocations, acquisitions of insurance companies etc. I don’t really understand how it all works but imagine the tectonic plates are shifting. Will be interesting watching him over the next few years. Anyone know how he thinks about these things?

I also imagine that this is a much bigger topic now for Berkshire given its size. The old days of putting $1 Billion into Coca-Cola and transforming the company are long gone. Although he did it again with Apple. Who knows maybe he puts $100 Billion into Alphabet at 10 times earnings over the next few years and transforms Berkshire yet again but that seems less likely as the firm gets bigger.

But maybe if bonds become very attractive compared to equities there is no longer the Berkshire is too large to grow issue? Berkshire could lend hundreds of billions to the US government at the right price?

Thoughts?

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That is exceedingly optimistic. As I was reading your post I was thinking “what has Greg learned”? It is the loss of this kind of big swing thinking that may well cost Berkshire when Buffett is no longer at the helm.

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Google at 14x earnings ex cash on 2023. Munger has called it the biggest moat he has ever seen. If not now…when?

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It does sound reasonable…and the lower it goes the more comfortable they will get

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No doubt we will miss the Buffett mix of patience and aggression. But he’s not done yet. In fact the way markets are trending he might get one hell of a last hurrah…which would be fitting

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I presume interest rates need to either stop rising and significantly exceed inflation or else be on the way back down to make bonds attractive.

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