Investors should avoid bond market, wrote in an annual letter to shareholders Warren Buffett. "Investors in the markets for instruments with fixed income worldwide, whether pension funds, insurance companies or pensioners are waiting for a gloomy future," wrote the 90-year-old General Director of Berkshire Hathaway. - market participants, both on regulatory reasons and from the point of view of credit ratings, should pay close attention to bonds. But the bond market is not the place where you need to be today. "
After the annual meeting of Berkshire Hathaway shareholders in early May 2020, the investment guru for the pandemic period practically did not make public statements. In his annual letter, which accompanies the publication of the annual report of the company, he commented on the current situation in the bond markets, heavily exacerbated in recent weeks, shared his opinion on the prospects of the American economy and explained, why Berkshire Hathaway spent almost $ 25 billion for the redemption of their shares last year.
The profitability of government bonds of developed countries has greatly increased by the last week as a result of a massive sale, which was concerned with the participants of world stock markets. The yield of 10-year-old treasury bonds of the United States, which at the beginning of the year was 0.9%, by the end of this week it rose to 1.415%. Investors go out of safe tools, waiting for a sharp acceleration of economic growth. Optimism regarding the revitalization of the global economy also provoked expectations of accelerating inflation and revision by ultrabas money policy in central banks.
Many investors leaving the state bonds replace them in their portfolios more risky low-cost credit quality. "Some insurers, as well as other investors in bonds, can try to squeeze at least something from insignificant income that is now on the market, translating funds in the obligations of dubious borrowers. However, risky loans are not an answer to inadequate interest rates, "Buffett warned. "Three decades ago, once a powerful loan-savings associations brought himself to death, including because he ignored this maximum," the investor reminded.
Crisis of loans-savings associations ↓
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Because of the stagnation in the 1970s. and raising the official Fed rate in the early 1980s. The deposit rates in the US loan-savings associations greatly increased. Income they continued to receive from mortgage loans issued earlier at fixed low rates. Many associations actually becoming insolvent, tried to engage in risky operations to extend their activities. After a full-scale crisis from 1986 to 1995. More than 1000 of the 3234 associations were eliminated.
Berkshire Hathaway itself is a major participant in the fixed-income tools market - in many ways because it needs to keep a huge cash somewhere, which at the end of the year amounted to $ 138.3 billion about $ 113 billion of them were invested in short-term paper - Treasury bills Then, in more long-term bonds - only $ 3.4 billion. The company slightly reduced its investments in corporate bonds in the IV quarter.
Buffett in the past has repeatedly noted that it cannot find a fairly large goal for absorption. Therefore, Berkshire Hathaway free cash continue to grow, and this does not like investors. In the past two years, its shares are lagging behind the S & P 500 index. For example, in 2020 they rose by 2.4%, and index - by 16.3%.
Over the past year, Berkshire Hathaway spent $ 24.7 billion on the redemption of its shares, and the purchases were intensified in the fourth quarter ($ 8.8 billion). Buffett explained them like this: along with his partner Charlie Manger, he "decided that they would increase the internally inherent value of [the company] and at the same time at Berkshire will remain with excess tools to take advantage of any opportunities or solve problems if they arise."
"The redemption of shares was in the center of universal attention and was really very large," says Jim Shanakhan, Edward Jones analyst. According to him, this year the company bought out a shares by another $ 4.5 billion.
The growth of the stock market means that the possibilities of buffett for absorption will remain limited. "Most of these truly great businesses were not interested in which someone bought them," Buffett said. Therefore, he and Manger pay an increased attention to the stock portfolio, the size of which in 2020 reached $ 281 billion. Berkshire Hathaway bought a Verizon Communications mobile operator's shares for $ 8.6 billion and Chevron - by $ 4.1 billion (the shares of the oil company fell greatly During the crisis, it, unlike Exxon Mobil, retained a positive free cash flow in 2020). Berkshire Hathaway also reduced a slightly share in its largest investment - Apple (Package cost $ 118 billion at the end of the year).
"He remains adamant on the issue of [purchase] and still exists a discipline in the matter of value estimates - comments Sanyan. - As a result, he missed some possibilities. "
Buffett also confirmed his confidence in the letter in the prospects of the American economy, saying to shareholders that the country "moved forward" and that "never need to play against America."
"For the short 232 years of its existence there was no other such incubator for the disclosure of human potential as America. Despite some severe breaks, the economic progress of our country is simply awesome. "Berkshire Hathaway, which owns communal and energy companies in different parts of the country, spent a part of money for renewable energy projects, and also implements a multi-billion dollar project to modernize power lines. "Electrical companies in our country require large-scale restructuring, the total value of which will be huge," Buffett wrote.
In the IV quarter, Berkshire Hathaway net profit (including unrealized income from investment in stock) increased by almost 23% compared to the same period of 2019 to $ 35.8 billion. Operating profit increased by almost 14% to $ 5 billion for full 2020 g . Operating profit decreased by 9% to $ 21.9 billion.
Translated Mikhail Overchenko