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Berkshire Hathaway Inc. Message Board

  • hjclasvegas6969 hjclasvegas6969 Jun 18, 2013 8:22 AM Flag

    mornin jad, just wondering bud, if you had a 30 year horizon,

    how much bond exposure would you want ? anyone else with an opinion ? do we agree buffett would say zero bonds out 30 years as of today ?

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    • Hi H,

      For those who want little short term risk, LT bonds aren't a bad place to be - particularly if you are biding time. This doesn't mean holding till maturity, but a sudden rise in interest rates will cause a much smaller loss than a sudden drop in equity prices if you are overly long in stocks.

    • Gotta agree with jad.

      Anything other than cash is 'reaching for yield'. Something that Graham cautioned about in 1949.

      The only exceptions are some relatively high yielding preferreds --
      I used to own quit a bit, but they got called over the last 12 months.

      These aren't really bonds. They are hybrids and can only be purchased (IMO) intelligently as special situations. The best case are businesses whose credit profile would improve with a small dose of inflation.

      Absent the central banks, there are enormous deflationary pressures. Bonds would kick #$%$ @ roughly 0% in a deflationary environment -- but the central banks simply won't let it happen.

      The macro situation is so crazy that the only rational approach is to 'go buffett' and try to buy great businesses and forget trying to forecast the macro environment.

      Not that Buffett isn't making macro calls all the time.

    • My Retirement Account is currently: 42% Stock, 4% Bonds, 53% Cash, and 1% Other.

      I own a fund of funds, VPDFX, that holds, among other things, the bonds.

      I prefer Cash over Bonds.

      But I can understand that a professional money manager, who collects a fee based on total assets, might be required to hold bonds (a "productive" asset) over cash.

      Nevertheless, I doubt despise bonds. They don't make much, but they won't lose as much as stocks will either when interest rates rise. The Macaulay Modified Duration is a measure of price sensitivity and is the percentage change in price for a unit change in yield. Both bonds and stocks have a duration.

      Duration - Asset
      0% - Cash
      5.5% - Bonds, {BND - Vanguard's Total Bond Market ETF}
      30 to 50% - Stocks, { My estimate is 33%, Hussman gets 50% based on the S&P 500's Price to Dividend ratio}

      As always, just my opinion.

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