Page 21 - Investment Advisor April/May 2023

She’s also exercising some caution in in years, it’s possible to seek total returns take on more risk might earn even
case of recession. in the high single digits by investing in higher returns from bonds.
core bonds and proven dividend-pay- “Traditional asset allocation is not a
10 The 60/40 Portfolio ing stocks without taking undue risk or broken or failed strategy. It will always
Model Endures reaching for yield,” equity portfolio man- make sense to think about balance, diver-
While stocks and bonds both declined ager Hilda Applbaum wrote in the report. sification and risk. A one-size-fits-all
for the first time in decades last year, hit- Many core bonds now can provide a approach doesn’t work for every inves-
ting 60/40 portfolios hard, Capital Group consistent return in mid-single digits, tor. It’s about building portfolios from
stands by the well-balanced portfolio con- something not seen since 2008, she the bottom up that align with investor
cept, however it’s split. “For the first time wrote, adding that investors willing to goals,” she wrote.

A similarly sized investment mistake in the 1990s, like a investing in non-textile businesses, Buffett noted.
high-grade 30-year bond that simply retained its $1.3 billion “Thus began our journey to 2023, a bumpy road involving a
value, would now represent only 0.3% of Berkshire’s net worth combination of continuous savings by our owners … the power
and deliver about $80 million in annual income. “The lesson for of compounding, our avoidance of major mistakes and — most
investors: The weeds wither away in significance as the flowers important of all — the American Tailwind,” he wrote. “America
bloom. Over time, it takes just a few winners to work wonders. would have done fine without Berkshire. The reverse is not true.”
And, yes, it helps to start early and live into your 90s as well.” At the end of 2022, Berkshire was the largest owner of eight
Share buybacks benefit all holders: Share repurchases that S&P 500 companies: American Express, Bank of America,
add value benefit all shareholders, Buffett wrote, noting that Chevron, Coca-Cola, HP Inc., Moody’s, Occidental Petroleum
a “very minor gain in per-share intrinsic value” took place in and Paramount Global. The company also owns 100% of BNSF
2022 through Berkshire share repurchases and similar moves and 92% of BH Energy, which if publicly owned would replace
at Apple and American Express, both major holdings. two present members of the 500, he noted.
Berkshire repurchased 1.2% of the company’s outstanding “All told, our 10 controlled and non-controlled behemoths leave
shares, and buybacks at Apple and Amex increased Berkshire’s Berkshire more broadly aligned with the country’s economic future
ownership a bit without any cost to the firm. “The math isn’t than is the case at any other U.S. company,” excluding fiduciary
complicated: When the share count goes down, your interest companies like pension funds and investment firms, Buffett wrote.
in our many businesses goes up,” Buffett wrote. “When you are Taxes are not the enemy: The U.S. Treasury received about
told that all repurchases are harmful to shareholders or to the $32.3 trillion in taxes in the decade ended in 2021; Berkshire
country, or particularly beneficial to CEOs, you are listening to Hathaway contributed $32 billion through the corporate
either an economic illiterate or a silver-tongued demagogue — income tax.
characters that are not mutually exclusive.” Berkshire leaders “hope and expect to pay much more in
Congress passed and President Biden signed into law a 1% taxes during the next decade. We owe the country no less:
buyback tax last year. In his State of the Union speech earlier America’s dynamism has made a huge contribution to whatev-
this year, Biden called for quadrupling the tax. er success Berkshire has achieved — a contribution Berkshire
Be wary of operating earnings: Even though Berkshire will always need. We count on the American Tailwind and,
prefers to look at companies’ operating earnings, Buffett cau- though it has been becalmed from time to time, its propelling
tioned that management can easily manipulate these numbers. force has always returned,” Buffett continued.
“Such tampering is often thought of as sophisticated by While citizens seem to enjoy self-criticism and self-doubt,
CEOs, directors and their advisors,” he wrote. he said, “I have yet to see a time when it made sense to make
“Reporters and analysts embrace its existence as well. a long-term bet against America.”
Beating ‘expectations’ is heralded as a managerial triumph. Plan for risks: “Berkshire will always hold a boatload of cash
That activity is disgusting. It requires no talent to manipulate and U.S. Treasury bills along with a wide array of businesses.
numbers: Only a deep desire to deceive is required. ‘Bold imag- We will also avoid behavior that could result in any uncomfort-
inative accounting,’ as a CEO once described his deception to able cash needs at inconvenient times, including financial pan-
me, has become one of the shames of capitalism,” Buffett said. ics and unprecedented insurance losses,” Buffett wrote.
Invest in America: In 1967, Berkshire shifted from being a “Our CEO will always be the Chief Risk Officer — a task it is irre-
“one-trick pony” owning a doomed textile operation to a firm sponsible to delegate ...,” he explained. —Dinah Wisenberg Brin

APRIL/MAY 2023 INVESTMENT ADVISOR 19