Change in Asset Allocation

I’ve reduced my “10 years worth of living expenses in cash and short-term bonds” to 5 years and cycled the proceeds into BRK.

intercst

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I’ve reduced my “10 years worth of living expenses in cash and short-term bonds” to 5 years and cycled the proceeds into BRK.

intercst


Are you concerned about a recession driving the price of BRK down in the near term? Maybe you could buy BRK at cheaper prices if the next quarter is also a decline in GDP. This is my dilemna about rolling some cash onto an S&P5000 index at the present time.

We just had a down quarter for the GDP, one more and we are in a recession. Food, fuel, supply chain, rising interest rates, Ukraine all point to headwinds for the economy.

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Tsk tsk. Market timer

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bighairymike asks,

Are you concerned about a recession driving the price of BRK down in the near term?

No. I don’t invest in the stock market “for the near term”. I’m more interested in reducing my taxable interest income now that rates are up. I’m about 3-1/2 years from collecting SS at age 70 and my dividend income is more than double my spending, so even 5 years in cash is probably overkill.

I read something last week that people should take to heart.

https://www.nytimes.com/2022/04/22/business/retirement-inves…

“The best returning portion of your bond portfolio is actually delaying Social Security,” Dr. Reichenstein said (4% rule - Trinity study co-author). “Why do most people start as soon as they can or pretty close to as soon as they can? My strong expectation is, they haven’t learned deferred gratification.”

intercst

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We just had a down quarter for the GDP, one more and we are in a recession.

It is important to understand WHY it was negative - and why the first quarter was actually much stronger than the top line number.

First Quarter GDP Was Stronger Than The Reported 1.4% Decline When You Peel The Onion
https://www.forbes.com/sites/chuckjones/2022/04/29/first-qua…

The imbalance between imports and exports subtracted 3.2% from the first quarter’s GDP growth rate. If that impact were removed the reported growth number would have been 1.8%. While trade has had a negative impact on the reported growth rate for the past eight years and the past six quarters, over the past 28 quarters there has only been one quarter with a bigger impact (3Q 2020 with a negative 3.25%).

It isn’t surprising that with the U.S. economy recovering faster than other major countries that we are buying and importing goods at a higher rate than other countries are buying our exports. For the past 10 years the hit to the year’s growth rate has been fairly small except for last year.


In other words, GDP was negative because the rest of the world is recovering at a slower pace than we are. Another big bite was inventories were down nearly 1% and that will correct itself over time.

A Quarterly GDP Drop Doesn’t Always Lead to Recession. What History Tells Us.
https://www.barrons.com/articles/quarterly-gdp-drop-doesnt-a…

The U.S. Bureau of Economic Analysis has been tracking the gross domestic product numbers since 1947. Over the past 75 years or 300 quarters, the annualized rate of quarterly real GDP growth has turned negative 44 times. Not all resulted in recession, which typically requires two negative quarters back to back.

In the first quarter of 2011 and 2014, for example, the real GDP contracted 1% and 1.4%, respectively, but later jumped back to grow 2.7% and 5.2% in the respective second quarters. Those one-time blips didn’t lead to recession.


Lastly, we have never had a recession while also having sub 4% unemployment (excluding the short V-shaped recession of 1953). We should expect a dramatic increase in unemployment coinciding with any recession.

https://www.clevelandfed.org/newsroom-and-events/publication…

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Tsk tsk. Market timer

I noticed that the DOW surged 900 pts about 30 minutes after I submitted my BRKB order. Stock up about $4/share over my purchase price.

Some people seem to succeed at market timing while not really trying.

intercst

I do believe that some areas are depressed. And inflation is rising, even though I don’t generally see it in my daily shopping (except gasoline, which isn’t much of an issue since we have an EV). If the price of a loaf of bread went up from $3 to $3.24, I probably wouldn’t notice it. (We buy good bread.) Often we get it at Costco or on sale, so we seldom pay ordinary retail anyway.

My company is “balls to the wall”. I’m not privy to the details, but I know our inventory is down even as our facilities are at (or near) capacity. Somebody is buying our stuff. And our stuff goes into other products, so someone is buy THOSE products too.

And apparently there is a long lead time on appliances and cars, so people are buying those as fast as they are built.

I gather I should have been born later so I could just be getting a career going, because in tech they are grabbing everyone they can. Starting salaries are not much lower than my current salary (as an experienced senior person who is retiring).

1poorguy

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Are you concerned about a recession driving the price of BRK down in the near term? Maybe you could buy BRK at cheaper prices if the next quarter is also a decline in GDP. This is my dilemna about rolling some cash onto an S&P5000 index at the present time.

We just had a down quarter for the GDP, one more and we are in a recession. Food, fuel, supply chain, rising interest rates, Ukraine all point to headwinds for the economy.

All good points, but in the words of Lt. Aldo Raine “And cousin, business is a-boomin’!” Everyone I talk to in every industry is going flat out. They can’t buy enough of their inputs, they can’t build fast enough to fill orders, they can’t hire enough people, etc. It is crazy.

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The imbalance between imports and exports subtracted 3.2% from the first quarter’s GDP growth rate. If that impact were removed the reported growth number would have been 1.8%.

I saw that talking point in NYT and some other outlets, as well, but imports do not reduce GDP in the way the article implies. Imports should be GDP-neutral.

The reason the GDP equation uses net exports (imports - exports) is because imports are included in consumption, investment, and gov’t spending and therefore need to be backed out of the total (note the D in GDP); otherwise GDP is overstated.

In other words, GDP = Consumption of domestically-produced things + Domestically-produced private investment + Government spending on domestically-produced things + Exports

See also https://fredblog.stlouisfed.org/2018/09/do-imports-subtract-…

and https://research.stlouisfed.org/publications/page1-econ/2018…

Sorry, that should have said net = eXports - iMports. I think I typed them backwards.

cycled the proceeds into BRK.

Single stock risk, Buffett risk, I think most people while admiring WEB, still don’t recognize how instrumental he is for Berkshire success, I mean he made $100 Billion profit on Apple stock. Such out of the world alpha creation will be gone pretty soon. YMMV

Single stock risk, Buffett risk, …

Buffett risk is real and has been so for the last decade or so. The question isn’t will the stock sink with his demise, but how much?

Will the stock sink to a point significantly lower or higher than today’s price?

I am not talking about stock sinking, the value creation by Buffett will go away and the stock price has to be supported only by their insurance and operating business earnings. The multiples could compress.

I have a decent amount of BRK but I think right now I’d be tempted to buy Google before BRK or at least split it among BRK, GOOG and a couple of other companies.

"I noticed that the DOW surged 900 pts about 30 minutes after I submitted my BRKB order. Stock up about $4/share over my purchase price.

Some people seem to succeed at market timing while not really trying.

intercst"

and the day after the DOW dropped 1,000 points…

should have waited a day to buy your BrKB order

t.

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telegraph suggests,

"I noticed that the DOW surged 900 pts about 30 minutes after I submitted my BRKB order. Stock up about $4/share over my purchase price.

Some people seem to succeed at market timing while not really trying.

intercst"

and the day after the DOW dropped 1,000 points…

should have waited a day to buy your BrKB order

BRKB closed today within 25 cents of my purchase price of 318.90.

Retirement investing is a 50 or 60 year project (i.e., 20 or 30 years of savings followed by (hopefully) 20 or 30 years of spending in retirement.) One day’s market action is lost in the roundoff. Much better to focus on “minimizing the skim” and letting the money grow unburdened by trading costs and taxes in a vehicle that doesn’t pay a dividend like BRK.

intercst

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All good points, but in the words of Lt. Aldo Raine “And cousin, business is a-boomin’!” Everyone I talk to in every industry is going flat out. They can’t buy enough of their inputs, they can’t build fast enough to fill orders, they can’t hire enough people, etc. It is crazy.

It’s a good reminder of another old saying: “The stock market is not the economy.”

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"It’s a good reminder of another old saying: “The stock market is not the economy.” "


Tends to be a picture of where folks believe the economy is headed.

Howie52

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