Warren Buffett’s Latest Wisdom

One of my favorite days of the year is when the annual report of Berkshire Hathaway comes out. It is always on a weekend and we spend a good amount of time pouring over it for wisdom from the Oracle of Omaha – Warren Buffett. Here are our highlights from his latest missive.

On the Current Deal Making Environment:

 Buffett noted in his annual address that prices for assets are challenging. In his never-ending quest to deploy more money and buy companies he described that finding a deal at “a sensible purchase price” has become a challenge”.

Investment Lesson On Buying Stocks:

 As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. (emphasis mine)

Investment Lesson On Markets:

Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.

Given historically stretched valuations and Mr. Buffett’s comments validating the difficulty finding sensible acquisitions it demonstrates the difficulty in purchasing stocks at a sensible multiple of earnings given prevailing interest rates and interest rates trend higher. We do not mind looking unimaginative or even foolish at this period in time in being underweight assets and overweight cash.

Much has been made about new Fed Chair Powell and the hand dealt to him by the former chair. You could not pay me to take Powell’s job. He is doomed to fail – by design. Powell is left to try and reset monetary policy after almost a decade of emergency policy. His job is to tighten monetary policy and give the Fed room to respond to the next crisis with a smaller balance sheet and higher rates from which to cut. He will tighten until something breaks and break it will. How else will he know if he has tightened enough? It is his job to “fail” and he will be the fall guy for Congress and Trump.

Last week we spoke of zombie companies and pointed to HNA Group out of China. We were close to the mark as it was ANBANG a $315 Billion insurer that was bailed out by the Chinese government this week. Markets barely blinked. Rates are rising and taking the tide out with them. Who will be caught swimming naked next and when will markets care?

We are still pushing towards the old high in the S&P 500. Remember, that is the key test for the market. We keep hearing pundits suggest that we must test the lows put in during the VIX Crash. Not so. The bulls were running so hot since the election it is the old HIGHS and not the lows that hold the key to future market direction. 

The 10 year Treasury has moved to resistance at the 3% level. As the 10 year tries to push through 3% equities continue to sell off. As the 10 year backs off of its assault on 3% equities continue to run higher. We think that the 10 year should at least struggle to get through 3% and that should allow equities time to retest the old highs. The gap at 2850 should draw the bulls like a moth to flame. Gaps are technical indicators because it shows massive change in sentiment and the psychological underpinnings of the market. If the market should struggle and fail at 2850 on the S&P 500 (and see the 10 year rise above  3%) then the bears may be in charge.


I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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  1. […] address he notes that prices for assets are challenging. He described that finding a deal at “a sensible purchase price” has become a challenge”. – Berkshire Hathaway Annual Letter […]

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