Warren Buffett recently issued Berkshire Hathaway’s (NYSE: BRK.B) annual letter. And as with every edition the Oracle of Omaha has penned over his six decades at the helm, you can bet that millions of investors are picking over every word looking for insights.
They’re not wrong to look. Since 1965, Buffett’s cumulative returns at Berkshire Hathaway have been an astounding 2,810,526%. The S&P 500 returned “only” 23,454% over the same period.
So let’s join the horde poring over Buffett’s words and see if any are applicable to your retirement. I’ve picked out a few of my favorites.
Buffett on Conglomerates
Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a promoted stock can itself become the “proof” that an illusion is reality.
Eventually, of course, the party ends, and many business “emperors” are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers but whose creations ended up as business junkyards.
Buffett was writing about the lousy history of conglomerates. But I would argue that we could make many of the same claims about the explosion of SPACs, or “special purpose acquisition companies” over the past few years. These are the “blank check” companies replacing many traditional IPOs.
A blank-check company is exactly what it sounds like. Investors buy shares of companies based on nothing more than the promise of making a future investment in an actual business … a business that is still unknown at the time of your purchase.
Some of these will succeed. But this is “lottery ticket” investing. It’s hard to see it ending well for most. And if you are in retirement, be especially careful about buying into SPACs.
Buffett’s Outlook on Bonds
Moving on, Buffett is not bullish on bonds:
And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond — the yield was 0.93% at yearend — had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future.
I agree with Buffett that bond yields are pretty dismal right now. As I wrote earlier this week, the big spike in yields is probably close to over. But that doesn’t mean bonds are a great place to be right now.
You shouldn’t be 100% invested in buy-and-hold stocks either. Remember, Buffett is running an insurance conglomerate with an investment time horizon of forever, not a retirement portfolio with a timeframe of a couple of decades at most. And Buffett’s company does own billions of dollars in bonds, even if it owns less than its competitors.
Bonds still offer protection against stock market volatility, and most retirees should own some. But I agree with Buffett that we should tread carefully here. I’ve argued for months that running “rinse and repeat” short-term stock and options trading strategies might be a better use of your capital than a buy-and-hold position in bonds.
If you are looking for an easy way to buy into some shorter-term investments, look no further than Green Zone Fortunes. Adam O’Dell and I provide monthly stock recommendations along with guidance on when to buy and sell. It’s all based on Adam’s system that he used to “retire” at 33! To learn more about this service, check out Adam’s Millionaire Master Class here.
And finally, go America!
In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America.
Well said, Mr. Buffett.
There is a lot of negativity out there, and most of it seems to center around politics. The greatest piece of advice I can give you is to turn off the news, and particularly political news. Quit Fox News, CNN, MSNBC, OANN, NewsMax or wherever you go for your news fix, and do it cold turkey. Now. Quit them all, irrespective of political slant. They’re all equally bad for your health.
Watching the news gives you the illusion of “doing something productive” in retirement, but it’s actually anti-productive. Taking a vacation is unproductive because you are not working, but it’s not anti-productive in that it doesn’t destroy your initiative. It might actually recharge your batteries and put you in a better place to be productive later.
Watching the news makes you angry, causes anxiety and creates pessimism that makes it impossible to actually go out and do something.
America is still the best place in the world to start a business. I have a friend who, of all random things, launched a dumpster sterilization business. It’s doing well. If he had wasted his time watching the news, that wouldn’t have happened.
If you’re still working, don’t be afraid to start a side business. And if you’re already retired, consider starting a hobby business.
This is America. Roll up your sleeves and get it done!
To safe profits,
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.