Buffett on Stocks versus Bonds

The Oracle of Omaha in a recent appearance.

Buffett has been reiterating the same theme – bond bubble – for some time now. To wit, the below, from his shareholder letter back in 2008:

When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

And it’s not just Warren speaking of bubbles.

FDIC Chairwoman Sheila Bair told CNBC there “a bit of a bond bubble now“, longtime bond bull Goldman Sachs believes bonds have peaked and will be heading lower from here, and Pimco’s Steve Rodosky tells Dow Jones today that “the best day in Treasurys is probably behind us.” He hasn’t bought them since July.

Hat tip ValueHuntr.

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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