Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.
The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.
He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.
On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.
The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.
Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.
Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.
On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.
At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.
Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.
Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.
He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.
3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.
Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.
Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.
BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.