In the late 60s to early 70s, while the market was complacent - enjoying daily gains and partying - not knowing a big bear market will broke out in 2-3 years time, he buried himself in bonds. He wrote to his shareholders in 1972.
We were most fortunate to experience dramatic gains in premium volume from 1969 to 1971 coincidental with virtually record-high interest rates. Large amounts of investable funds were thus received at a time when they could be put to highly advantageous use. Most of these funds were placed in tax-exempt bonds and our investment income, which has increased from $2,025,201 in 1969 to $6,755,242 in 1972, is subject to a low effective tax rate.
Our bond portfolio possesses unusually good call protection, and we will benefit for many years to come from the high average yield of the present portfolio. The lack of current premium growth, however, will moderate substantially the growth in investment income during the next several years.
In 1973-1974 bear market, stock market declined by almost 50%. Buffet has unrealized loss quoted securities of US $ 17 million at the end of 1974 and realized loss of US $ 3 million in 1975. I could not find what was his total investment as he did not state in his letter to his shareholders. I estimated he could have lost about 22% but still beating the market handily. I hope you find some consolations that even the best will lose money in extreme bear market.
He purchased a large block of Washington Post in 1974. I will not elaborate extensively as you can find this story in a lot of books. He stayed pretty defensive by buying California Water Service Company, retailers and aluminium company Kaiser Industries Inc and Kaiser Aluminium & Chemical Inc.
I noticed though has has been buying equities, his positions were built up gradually with the market recovery.
Year / Cost / market value
1976 / 75 million / -
1977 / 106 million / 181 million
1978 / 133 million / 220 million
1979 / 325 million / 525 million
1980 / 351 million / 639 million
No comments:
Post a Comment