According to the world’s most famous investor, the US economy’s “unbelievable period” is coming to an end in recent months. And even his own company, Berkshire Hathaway, is no stranger.
“Most of our businesses will report lower earnings this year than they did last year,” Buffett warned at Berkshire’s annual meeting on Saturday.
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This is a somewhat surprising statement from a man notoriously bullish on the US economy.
But persistently high inflation, rising interest rates and the ongoing banking crisis have made Buffett even more concerned about investment returns over the next year. His partner Charlie Munger echoed this sentiment. “Get used to reducing your income,” he said.
Their pessimism about the economy was reflected in the company’s investment portfolio.
Berkshire Hathaway became a net seller of stocks in the first quarter of 2023, taking in $10.4 billion in net stock sales. The company’s cash holdings grew to about $130.6 billion from $128.6 billion at the end of last year.
Investors should probably heed Omaha’s Oracle’s warnings, but that doesn’t mean exiting the market entirely is the right strategy.
Instead, leveraging recession-resistant assets and international stocks could diversify portfolios enough to withstand these downward forces.
Portfolio impact resistance
Some service sectors are relatively isolated from the rest of the economy. These businesses are typically backed by a bank of recession-resistant assets that maintain their value through waves of inflation.
Caretrust REIT (CTRE) is a good example. The company owns and operates medical facilities nationwide. With more than 21,795 hospital beds and 204 facilities in 23 states, this real estate investment trust could act as a rough agent for America’s private healthcare industry.
The stock offers a 5.7% dividend yield and could be an ideal anchor for a recessionary portfolio.
A recent Bloomberg survey of economists put the odds of a U.S. recession in 2023 at as high as 65%. Risk is also high in other developed markets such as the UK, France, New Zealand and Canada.
However, developing markets are far less susceptible to recessions. In fact, the same survey suggests he has a 0% chance of India going into recession.
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Simply put, investors can protect their wealth by investing in foreign stocks. His HDFC Bank, India’s largest private bank, is listed on the New York Stock Exchange under the ticker HDB. The company’s stock has delivered a total return of over 4,300% since going public in 2001, and has outperformed most US banks during the 2008 financial crisis.
India is not the only option. US investors can bet on Chinese, Singaporean and Indonesian stocks through ETFs and American Depositary Receipts.
With Berkshire boasting $130 billion in cash at the end of the first quarter, Buffett’s favorite asset now appears to be Treasuries. Oracle significantly increased its Treasury and cash equivalent holdings during the quarter.
With interest rates on savings accounts rising, this could also be a smart move for retail investors.
It might be a good idea to work out how much cash you have. Apple’s new high-yield savings account offers an impressive annual yield of 4.15%. According to the company, that percentage is 10 times the national average. In fact, this yield is higher than the S&P 500 or the 5-year Treasury yield.
It can only be said that cash is king in 2023.
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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.