![]() Because interest rates were well below that for some time, we frequently wrote that we believed long bonds were overvalued and didn’t think they would reduce risk in balanced portfolios. Throughout most of history, long government bonds have yielded slightly more than inflation. What was different this year? Interest rates started the year at close to zero. So, holding bonds along with equities usually results in a less volatile portfolio. For example, when investors worry about an economic slowdown, bonds typically rise in price while equities fall and vice versa when anticipating economic recoveries. ![]() Normally, bonds are less volatile than stocks and further, the two are not highly correlated with one another. It is an understatement to call 2022 an outlier. The average return of the Bloomberg 20-year+ Government Bond Index during those six years was plus 13%, including the only year it was negative, losing 2%. In the past 30 years, there have been six years when the S&P 500 was down, with the average loss being 15%. This past year has been highly unusual with long bonds losing more of their value than stocks have. No wonder logical people are wondering how much more of this they can take. Finally, factor in 8% inflation, the highest in over 40 years, and many portfolios have lost over 35% of their purchasing power. Further, assuming they were using that portfolio to meet living expenses, its value could easily be down 30%. A portfolio for a retiree-often something like 60% stocks and 40% bonds-could have lost even more than an all-equity portfolio, depending on the bonds’ maturities. That means asset allocation between stocks and bonds didn’t matter much this year. Treasury 20-year bond losing 30% year to date. Bonds are faring even worse, with the U.S. Why are so many people now worried that they could run out of money? The S&P 500 is down 24% this year. As I started to write my “stay the course” response, I thought this is the very issue most of our shareholders are facing today. ![]() She said that the market decline was really getting to her and that for the first time since she retired, she’s worried about running out of money. Last week I received an email from a shareholder who retired a decade ago. ![]() After purchase, we patiently wait for the gap between stock price and intrinsic value to close. We will purchase stock in those businesses only when priced substantially below our estimate of intrinsic value. ![]() We attempt to identify growing businesses that are managed to benefit their shareholders. ![]()
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