A Look Inside Warren Buffett’s Portfolio

It seems I’ve been writing a lot about Warren Buffett lately.

Earlier in May I used one of his favorite valuation tools to determine U.S. stocks are significantly more expensive than their overseas peers, and a few weeks before that I considered a letter he wrote back in 1999 that would suggest U.S. stocks are priced to deliver pretty crummy returnrns going forward.

Today, rather than dwell on the Oracle’s words, let’s take a cold, hard look at what he is actually doing with his money.

The following chart, courtesy of GuruFocus, tracks the stock and bond holdings of Buffett’s holding company, Berkshire Hathaway, going back to 1995.

may 18

The blue line shows he’s increased his exposure to stocks in recent years as the raging bull market has pulled the value of virtually every stock higher…

But it’s only slightly higher than the average of the past several years, and it is far below the levels of the late 1990s when he had over 75% of his portfolio in stocks. It would appear that in his mind, there hasn’t been an outright winner in terms of where you should put your assets.

That brings us to his allocation to bonds (the red line, labelled “fixed maturity” here). They’re at the bottom of his totem pole.

Bond prices, like stocks, have massively increased over the past several years as yields have scraped along near all-time lows.

Yet Buffett’s allocation to them has been in steady decline since the financial crisis. As recently as 2002, the guy had half his portfolio in bonds. Today, that number is just 14%.

Buffett is one of the best value investors to ever play the game, and it speaks volumes that he has been reducing his allocation to bonds for years now.

While I agree with Harry that bond yields are likely to stay very low for another several years and that high-quality bonds, if held to maturity, are a safe investment, I would also agree with Buffett that, at current yields, the value just isn’t there.

Bonds can make for a good short-to-medium-term trade. But to buy at today’s yields and hold them outright, you can’t expect much in the way of long-term returnrns.

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Charles Sizemore

Charles specializes in finding value opportunities and income plays outside of the mainstream stock market.