Not-So-Secret Admirer

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What's going on?

Berkshire Hathaway reported its fourth-quarter earnings over the weekend, and it looks like Warren Buffett’s investment conglomerate is its own biggest fan…

What does this mean?

Investors pay close attention to Buffett’s every move, and it’s easy to see why: his company’s portfolio has, on average, increased by twice as much as the US stock market every year for the last 55 years. And while Berkshire already revealed how it was reshuffling its portfolio last month, it didn’t come clean about its biggest investment of 2020: the company bought back a record $25 billion of its own stock.

Why should I care?

For markets: Share buybacks just keep giving.

By buying back its own shares, Berkshire has reduced the number available and, in turn, given its existing shareholders a bigger stake in the business. That effect multiplies if the companies Berkshire’s investing in buy back their own shares, which is why its shareholders now own 10% more of Apple than they did when Berkshire built its position in 2018 – even though it’s sold off some of that original stake since then.

The bigger picture: “Bonds face a bleak future.”

Berkshire’s full-year earnings update is also when Buffett shares his take on the financial markets in an annual letter to shareholders, and he took the opportunity to warn against bonds. He pointed out that the income – or yield –  generated by 10-year US government bonds fell 94% between September 1981 and the end of last year, which makes it very likely it’ll rise going forward (it can’t exactly drop much further, after all). And since bond prices move inversely with their yields, a drop in price is probably on the cards. You can see Buffett’s point: bonds have had their worst start to a year since 2013 (tweet this).

Originally posted as part of the Finimize daily email.

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