Bonds!

[73 Reds]

13 hours ago, wabuffo said:

He (we) is (are) getting paid a very subpar return. 

 

Big cash pools value safety (in terms of their counter-party), then liquidity and lastly, yield.  There are annual polls that prove this.  Its like 80% say safety is the no. 1 priority, 15% value liquidity and only 5% prioritize yield. 

 

When I say big cash pools, I'm talking about corporations, asset managers, forex desks, etc.    As the depositors in SVB learned the hard way, you don't keep billions on deposit at a bank.   That's why Buffett holds BRK's cash in T-Bills almost regardless of the yield he's getting.

 

Bill

Bill, I get that.  It's not the form of cash holdings (T-Bills) but the lost opportunity for such a large % of assets owned.  The argument that BRK is waiting for bear markets to deploy capital ignores the fact that we've had bear markets yet the cash pile continues to grow.  The World is awash in liquidity and the chance that BRK finds the "perfect" investment opportunity to deploy large sums of capital shrinks by the day.  Even a $100 billion investment won't make a huge amount of difference  - how many of these are out there?  This from an ardent BRK shareholder who likely will never sell my shares but would be hard-pressed to acquire additional shares under the circumstances.   

[Gregmal]

2 hours ago, 73 Reds said:

The argument that BRK is waiting for bear markets to deploy capital ignores the fact that we've had bear markets yet the cash pile continues to grow.  

Yup. This is a regular occurrence with the cash crowd. They get their opportunities, and still rather keep holding onto their cash.

[nwoodman]

22 minutes ago, Gregmal said:

Yup. This is a regular occurrence with the cash crowd. They get their opportunities, and still rather keep holding onto their cash.

Seems a bit unfair to lump Buffett in with the generic “cash crowd.” His restraint isn’t hesitation its discipline. I wouldn’t be surprised if this period of patient capital allocation ends up being remembered as one of his most brilliant strategic plays.

[Gregmal]

4 minutes ago, nwoodman said:

Seems a bit unfair to lump Buffett in with the generic “cash crowd.” His restraint isn’t hesitation its discipline. I wouldn’t be surprised if this period of patient capital allocation ends up being remembered as one of his most brilliant strategic plays.

It’s been going on now for almost a decade. Buffett hoarding cash isn’t some phenomenon that started last year as some grand market call. 

[73 Reds]

4 minutes ago, nwoodman said:

Seems a bit unfair to lump Buffett in with the generic “cash crowd.” His restraint isn’t hesitation its discipline. I wouldn’t be surprised if this period of patient capital allocation ends up being remembered as one of his most brilliant strategic plays.

Yeah, but it is always a question of degree.  I mean what occurrence - macro or otherwise - does anyone here truly envision where Buffett & Co, would have an opportunity to shoot fish in a barrel?  Alternatively, what private operator has any incentive now to call Berkshire for the purpose of acquiring their company?  Surely since the AAPL investment and setting aside the Japanese trading houses which have been a really good investment though not even close to needle-moving,  there have been investment opportunities far superior to T-bills.  As a shareholder, it is worth considering now that Buffett is passing the torch whether preservation of capital remains the company's primary objective.   Unless Berkshire starts making distributions, isn't Greg Abel's primary goal to attract new shareholders?  Preserving capital is fine for a subset (like me), particularly with large deferred capital gains but it does little to attract new buyers.

[Blake Hampton]

Is he really hoarding cash though? The amount of cash he currently has offsets nearly the same amount of liabilities.

 

I think he's ultimately trying to protect Berkshire, with the added plus of optionality.

 

"This note is legal tender for all debts, public and private"

[Blake Hampton]

"Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change. While our ownership in marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio.

 

Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.

 

Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the U.S. has come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.

 

Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability as long as their goods or services are desired by the country’s citizenry. So, too, with personal skills. Lacking such assets as athletic excellence, a wonderful voice, medical or legal skills or, for that matter, any special talents, I have had to rely on equities throughout my life. In effect, I have depended on the success of American businesses and I will continue to do so."

 

Berkshire Hathaway Shareholder Letter (2024)

 

Edited May 25, 2025 by Blake Hampton

[Blake Hampton]

I think I'm starting to view cash more like @Gregmal does I think, and please correct me if I’m wrong.

 

In the short term, it’s unclear to me whether holding cash is a good move or not; I can imagine scenarios where it goes either way.

 

But in the long term, I’m completely certain that it’s a losing bet.

 

Edited May 25, 2025 by Blake Hampton

[Gregmal]

Look at it in an extreme. A dollar in the roaring 1920s bought you a few acres of land in South Florida. Today a dollar doesn’t even get you through a toll on the Florida Turnpike.
 

Short term, it just depends on your skills as a trader. The reason it’s a poor bet for macro folks looking to invest, is that much of the opportunities are rather fleeting. Look at GFC, Covid, rate hike hysteria, most of these things start resolving in the markets within what’s considered a short term(less than 12 month) timeline. Whereas when you’re evaluating macro, you’re generally thinking in terms of events that take much longer to play out. So I don’t know many, whom in March, April, May 2020 whom were bearish pre COVID, that were backing up the truck a few months later. Look at how bearish folks here were in late 2022, and absolutely in early 2023. 
 

Essentially the more variables you try to predict the harder it gets; or the more decisions your investing strategy requires you to make, the more chances you have to fuck up. If you just find something with a fundamental advantage and a moat, and manage the position, trading around the core I call it, it’s so much easier. Especially when longer term it comes to tax management. Most short term traders fail to mention how obscene the tax bill is. One of Berkshires greatest advantages has been the deferral of taxes on massive gains on many of their equity holdings. 

[SharperDingaan]

4 hours ago, Gregmal said:

Yup. This is a regular occurrence with the cash crowd. They get their opportunities, and still rather keep holding onto their cash.

 

It's only viable 'cause nobody calls out the opportunity cost cash drag.

If/when the drag is called out, it would ideally lower the share price, and the company would simply buy its shares back whenever they are < BV

 

Win for all concerned.

 

SD

[73 Reds]

3 hours ago, Blake Hampton said:

I think I'm starting to view cash more like @Gregmal does I think, and please correct me if I’m wrong.

 

In the short term, it’s unclear to me whether holding cash is a good move or not; I can imagine scenarios where it goes either way.

 

But in the long term, I’m completely certain that it’s a losing bet.

 

Yes.  Waiting for the "right"opportunity is a losing bet.  How often do people holding large percentages of cash find excuses not to buy even when stocks get cheap?  Recognizing that recessions and macro downdrafts unrelated to specific businesses are bound to happen is not only practical but highly profitable in the long run if you don't bail on every piece of bad news.  The issue is how much cash to retain in order to take advantage of price declines and your own propensity to pull the trigger when they arise.  Having a bucket of investments that consistently throw off cash (or a high paying job) lets you remain more fully invested.  Personally, I have never purchased a T-Bill or any bond and don't plan to start now.

[John Hjorth]

23 hours ago, wabuffo said:

He (we) is (are) getting paid a very subpar return. 

 

Big cash pools value safety (in terms of their counter-party), then liquidity and lastly, yield.  There are annual polls that prove this.  Its like 80% say safety is the no. 1 priority, 15% value liquidity and only 5% prioritize yield. 

 

When I say big cash pools, I'm talking about corporations, asset managers, forex desks, etc.    As the depositors in SVB learned the hard way, you don't keep billions on deposit at a bank.   That's why Buffett holds BRK's cash in T-Bills almost regardless of the yield he's getting.

 

Bill

 

This, and worth repeating. 

 

His world is just so different from ours.

[Marco Van Basten]

On 5/24/2025 at 3:22 PM, Dalal.Holdings said:

Cash is trash...until there's a bear market, of course. Then, those who hold cash (or ST bonds) can scoop up distressed assets at distressed prices as Warren has demonstrated many times during his career. That's why he has alpha and so many don't.

 

Those who were all-in at the top get to ride the bear market all the way down and maybe watch everything they own get cut in half. If they were levered, the damage is much worse.

 

Either way, this is the bonds thread. While T-bills might provide "subpar" returns of 4.2%, 30 year treasury bonds provide a whopping ~5% return for locking your money in for 30 years while taking on massive interest rate risk. I'm sure those extra 80 bp of yield will be worth it...good luck to those who think that's a good deal. I know Warren doesn't and neither do I.

 

Contrary to those who are buying 20, 30 year bonds, I'm taking the opposite position: I still have 26 years left on my mortgage. If the dollar crumbles, a 30 yr fixed mortgage becomes a great position to be in while a 30 year fixed bond an equally atrocious position. Default risk is irrelevant. Act accordingly.

There was a bear market in 2020, 2022, and March/April of 2025.  What did Mr Buffett buy?  I agree that deficits are a huge problem, but I am not sure that T-bills are a good defense.  And the problem with holding T-bills is when do you pull the trigger?  Why wasn't Mr Buffett buying Fairfax in 2022-2024?  Why wasn't he buying MCO/MSFT/GOOG in fall of 2022?  Why wasn't he buying Facebook when Parsad was pounding the table?  (O'kay, I didn't buy either.)  To those who hold cash because they are concerned about the deficit, geopolitics, etc..., I share your concerns.  My question is: when will you pull the trigger and why?

I will say though at 2.7% on TIPS, that's interesting, albeit the risk is that the government miscalculates inflation....

Edited May 25, 2025 by Marco Van Basten

[nwoodman]

9 hours ago, 73 Reds said:

Yeah, but it is always a question of degree.  I mean what occurrence - macro or otherwise - does anyone here truly envision where Buffett & Co, would have an opportunity to shoot fish in a barrel?  Alternatively, what private operator has any incentive now to call Berkshire for the purpose of acquiring their company?  Surely since the AAPL investment and setting aside the Japanese trading houses which have been a really good investment though not even close to needle-moving,  there have been investment opportunities far superior to T-bills.  As a shareholder, it is worth considering now that Buffett is passing the torch whether preservation of capital remains the company's primary objective.   Unless Berkshire starts making distributions, isn't Greg Abel's primary goal to attract new shareholders?  Preserving capital is fine for a subset (like me), particularly with large deferred capital gains but it does little to attract new buyers.

True.  I need to be careful what I wish for, but I do think a time will come when Berkshire can deploy without competing with the Fed (2020) or PE (2022). Given today’s backdrop, it feels like we’re racing toward that inevitability. In that that context, Berkshire as a put option that pays (even if it lags the market) doesn’t seem like a bad idea at all. Liquidity events start slowly, then happen all at once.

[Blugolds]

The thing is, if you would have asked people 6-12 months  before Buffett had made the Apple or Japanese investments what options were out there, people would have said, this bum is never gonna have anything to swing at. 
 

We don’t know all the deals that came close and then didn’t pan out. And just like fishing, there is always a chance that the next cast is gonna land the lunker. 
 

I get the concern that more wasn’t done during past opportunities like Covid etc but hindsight is always 20/20.

 

I’m still hoping BHE becomes the place they can park large amounts of capital with satisfactory reliable returns, especially with the inevitable need for more energy production in this country in the next decade. And Greg is gonna be a good guy to have quarterbacking that. Maybe that’s naive but that’s my hope as a BRK shareholder. 

[Red Lion]

19 hours ago, Blugolds said:

 

I’m still hoping BHE becomes the place they can park large amounts of capital with satisfactory reliable returns, especially with the inevitable need for more energy production in this country in the next decade.

I think this is unlikely since Buffett is now seeing that huge wildfire litigation risk is not a California only phenomenon. BHE is taking it in the shorts in Oregon and the only states electing utility friendly tort reform are relatively minuscule markets. 

[Munger_Disciple]

2 hours ago, Red Lion said:

I think this is unlikely since Buffett is now seeing that huge wildfire litigation risk is not a California only phenomenon. BHE is taking it in the shorts in Oregon and the only states electing utility friendly tort reform are relatively minuscule markets. 

 

I agree. Buffett actually commented about it at this year's annual meeting when he answered the question about BHE equity valuation discrepancy (per share) between what Berkshire paid Scott's estate in 2024 and for Abel's stake in 2022. It is clear that Buffett very negative on regulated utility businesses, and his view changed in the last 2-3 years. I would be very surprised if Able & Buffett double down on utilities unless something drastically changes in the regulatory environment. 

Edited May 26, 2025 by Munger_Disciple

[Spooky]

On 5/25/2025 at 6:09 PM, Blake Hampton said:

I think I'm starting to view cash more like @Gregmal does I think, and please correct me if I’m wrong.

 

In the short term, it’s unclear to me whether holding cash is a good move or not; I can imagine scenarios where it goes either way.

 

But in the long term, I’m completely certain that it’s a losing bet.

 

 

Nailed it. In the short run who knows what will happen! In the long run stocks tend to go up.

[Spooky]

On 5/25/2025 at 7:06 PM, Gregmal said:

Look at it in an extreme. A dollar in the roaring 1920s bought you a few acres of land in South Florida. Today a dollar doesn’t even get you through a toll on the Florida Turnpike.
 

Short term, it just depends on your skills as a trader. The reason it’s a poor bet for macro folks looking to invest, is that much of the opportunities are rather fleeting. Look at GFC, Covid, rate hike hysteria, most of these things start resolving in the markets within what’s considered a short term(less than 12 month) timeline. Whereas when you’re evaluating macro, you’re generally thinking in terms of events that take much longer to play out. So I don’t know many, whom in March, April, May 2020 whom were bearish pre COVID, that were backing up the truck a few months later. Look at how bearish folks here were in late 2022, and absolutely in early 2023. 
 

Essentially the more variables you try to predict the harder it gets; or the more decisions your investing strategy requires you to make, the more chances you have to fuck up. If you just find something with a fundamental advantage and a moat, and manage the position, trading around the core I call it, it’s so much easier. Especially when longer term it comes to tax management. Most short term traders fail to mention how obscene the tax bill is. One of Berkshires greatest advantages has been the deferral of taxes on massive gains on many of their equity holdings. 

 

+1. "The first rule of compounding: Never interrupt it unnecessarily."

[gfp]

On 5/21/2025 at 3:19 PM, gfp said:

 

And a couple fills on ZROZ as well

 

 

I know you guys like to make fun of me with my 5% treasury trade but I went looking for 5% government paper and the cupboards were bare!  They stopped offering it!

 

Meanwhile I have taken the same 5% out of ZROZ like half a dozen times by now.

 

 

[Hektor]

17 minutes ago, gfp said:

I went looking for 5%

@gfp Why 5%. Apologies if you answered this earlier.

[gfp]

Just now, Hektor said:

@gfp Why 5%. Apologies if you answered this earlier.

 

There is nothing special about 5% but it is the number I use for my trade.  I think there is a wall of demand that comes in when treasury securities are offering over 5%.  Interest rates are going down across the globe and the days of 5% t-bills are long gone.  You cannot get 5% on government paper in very many places.

 

[thepupil]

On 5/24/2025 at 6:22 PM, Dalal.Holdings said:

Cash is trash...until there's a bear market, of course. Then, those who hold cash (or ST bonds) can scoop up distressed assets at distressed prices as Warren has demonstrated many times during his career. That's why he has alpha and so many don't.

 

Those who were all-in at the top get to ride the bear market all the way down and maybe watch everything they own get cut in half. If they were levered, the damage is much worse.

 

Either way, this is the bonds thread. While T-bills might provide "subpar" returns of 4.2%, 30 year treasury bonds provide a whopping ~5% return for locking your money in for 30 years while taking on massive interest rate risk. I'm sure those extra 80 bp of yield will be worth it...good luck to those who think that's a good deal. I know Warren doesn't and neither do I.

 

Contrary to those who are buying 20, 30 year bonds, I'm taking the opposite position: I still have 26 years left on my mortgage. If the dollar crumbles, a 30 yr fixed mortgage becomes a great position to be in while a 30 year fixed bond an equally atrocious position. Default risk is irrelevant. Act accordingly.

 

I don't really think the 30 yr = only 80 bps > t-bills is the right way to think about it. the 30 yr will have a VERY different return than t-bills on a 1,5,10 year time horizon and that approaches 4.8%/yr as you stretch the horizon to 30 yrs. 

 

at +-200 bps ending yield assuming reinvestment at 4.3%

 

30 yr will return b/w: 

-21% and 40%/yr on a 1 yr basis

0.7%/yr and 10%/yr on a 5 yr basis

3.3%/yr and 6.6%/yr on a 10 yr basis

 

I think it's helpful to think of long term fixed income on a total return basis at different horizons than the maturity. 

 

1 yr

 

 5 yr

 

10 yr

[gfp]

And these 27 year zero coupons are more volatile than the S&P many days!

[Hektor]

8 minutes ago, gfp said:

 

There is nothing special about 5% but it is the number I use for my trade.  I think there is a wall of demand that comes in when treasury securities are offering over 5%.  Interest rates are going down across the globe and the days of 5% t-bills are long gone.  You cannot get 5% on government paper in very many places.

 

Thanks @gfp