Page 20 - Investment Advisor April/May 2023

PORTFOLIO PERSPECTIVES

determining if they can meet their debt 9 High-Yield Bonds Appeal to yield bonds are higher quality now than
obligations,” fixed-income portfolio Cautious Investors during the Great Financial Crisis.
manager Damien McCann wrote. High-yield bonds in the current “The premium investors pay to own
“For example, established social environment can provide attractive high-yield bonds over comparable
media companies may be facing stiff income, with those around 8% helping Treasurys suggests bonds are fairly val-
competition for younger users, but provide a buffer against bond market vol- ued and may widen as growth slows and
they are also very creditworthy atility and potentially generating a posi- consumers pull back on discretionary
when measured by profitability, free tive return, the firm noted in the report. spending,” she wrote, adding that she’s
cash flow and relatively low debt levels,” Shannon Ward, fixed-income portfolio holding more liquidity than usual to take
McCann said. manager, noted in the report that high- advantage of potential market volatility.

Warren Buffett’s Top Nuggets of Investing Wisdom
Berkshire Hathaway shares outperformed the S&P including unrealized losses in its holdings; that compares
500 from 1965 through 2022, achieving a 19.8% with $89.8 billion in net earnings in 2021.
compound annual gain versus 9.9% for the Earnings including capital gains “are 100% mis-
broad market index, Chairman Warren Buffett leading when viewed quarterly or even annually,”
noted in his annual letter to investors, posted Buffett wrote. While capital gains are “hugely
online in late February. important … their quarter-by-quarter gyrations,
The billionaire investor attributed the regularly and mindlessly headlined by the media,
company’s performance over the decades to totally misinform investors,” he said. Here are some
“about a dozen truly good decisions,” good luck highlights from Buffett’s annual shareholder letter.
that saved him from some bad ones, sharehold- Philanthropy is key: Berkshire’s individual share-
ers holding on to their earnings, and the firm’s holders appear to be mostly “once-a-saver, always-a-
long-term investing strategy. Berkshire Hathaway invests saver” people who use their wealth to help others, Buffett wrote.
in two ways: buying companies it controls, usually through “Though these people live well, they eventually dispense most
100% ownership, and purchasing shares in publicly traded of their funds to philanthropic organizations,” he said. “These, in
companies, Buffett noted. turn, redistribute the funds by expenditures intended to improve
“Our goal in both forms of ownership is to make meaning- the lives of a great many people who are unrelated to the original
ful investments in businesses with both long-lasting favorable benefactor. Sometimes, the results have been spectacular.
economic characteristics and trustworthy managers. Please Buffett added: “The disposition of money unmasks humans.
note particularly that we own publicly traded stocks based on Charlie and I watch with pleasure the vast flow of Berkshire-
our expectations about their long-term business performance, generated funds to public needs and, alongside, the infrequen-
not because we view them as vehicles for adroit purchases cy with which our shareholders opt for look-at-me assets and
and sales,” Buffett wrote, referring to his business partner, dynasty building.”
Berkshire Vice Chairman Charlie Munger. “That point is crucial: ‘It takes just a few winners to work wonders:’ While some
Charlie and I are not stock-pickers; we are business-pickers.” Berkshire investments have yielded extraordinary results,
Buffett called it an appropriate time to give a report card on others have been marginal and some businesses it invested
his 58 years managing Berkshire. In that time, he wrote, “most in have folded. Capitalism, Buffett wrote, “creates an ever-
of my capital-allocation decisions have been no better than growing pile of losers while concurrently delivering a gusher of
so-so. In some cases, also, bad moves by me have been rescued improved goods and services.”
by very large doses of luck. … Our satisfactory results have been In 1994, Berkshire completed its purchase of 400 million Coca-
the product of about a dozen truly good decisions — that would Cola shares. The total cost was $1.3 billion, and Berkshire received
be about one every five years — and a sometimes-forgotten a $75 million cash dividend from Coke that year. By 2022, the
advantage that favors long-term investors such as Berkshire.” dividend had increased to $704 million. Berkshire’s purchases of
In 2022, Berkshire achieved a record $30.8 billion in operat- Amex, essentially completed in 1995, also cost $1.3 billion. Annual
ing earnings, excluding capital gains or losses on equity hold- dividends have grown from $41 million to $302 million. At year end,
ings, Buffett said. Berkshire, however, reported a $22.8 billion Berkshire’s Coke investment had reached $25 billion and Amex $22
net loss for 2022, fueled by $53.6 billion in investment losses, billion; each accounts for roughly 5% of Berkshire’s net worth.

18 INVESTMENT ADVISOR APRIL/MAY 2023 | ThinkAdvisor.com