No. of Recommendations: 39
Besides the valuation aren't we heading into (or already are in) a situation that as bond rates rise, more people will invest in them instead of stocks thus causing stocks to drop further?
Seems plausible.
Consider:
I have a clutch of models which estimate a plausible one year return from Berkshire stock.
The built in assumptions are that value growth will be typical compared to the last 15 years, and that the ending valuation multiple will also be typical of that era.
Even after the recent wee price drop, the median forecast is still only inflation + 4.3%.
One year TIPS are paying inflation + 3.41%
I can certainly see that some people might prefer the certainty of the TIPS, given that this alternative is only likely to get you 0.9% more!
Note, higher rates don't mean a share of Berkshire is
worth any less, merely that, as you say, it's pretty plausible that there might be some more sellers switching to bonds, which would bring down the stock price in the short term.
I see on other forums people panicking and running away from bond funds since they were under the illusion bond funds are safe and wouldn't lose them money and now seeing a 15-20% drop is causing them serious heartburn.
I've rarely ever owned bond funds...They may have more heartburn than you imagine.
TLT, the most popular T-bond fund, is down -50.6% from its peak as of Friday's close. Down "only" -47.1% when you count the coupons since then.
The peak was a while ago: it has been falling at a rate of -20%/year compounded for the last 3.7 years.
If you will indulge me a bit of retrospection, the absolute highest closing price for TLT was 2020-08-04
That was only 6 trading days after this post of mine:
http://www.datahelper.com/mi/search.phtml?nofool=y..."I am working on the idea of balanced QQQE, BRKB and TLT portfolio, in combination of 1/3 for each or various other allotments.
...
Do not buy TLT. If you own it now, sell it.
Add cash, or more of the other two, or something else.
Negative real return with huge risk of a big fall in prices? Just say no.
Or paste a "kick me" sign on your back.
Cash is really quite nice. Bonds only *seem* to have a yield."Berkshire has beat TLT by 38%/year compounded since that post 3.2 years ago.
Jim
