The Fed is unplugging the money printer.
The past few weeks have been brutal for investors. Markets are seemingly rerating every asset (stocks, bonds & crypto). As a young investor, this is the first time seeing how markets react to substantial inflation. The Fed is the elephant in the room, and it will be interesting to see how the bond market reacts when next month $95 billion of Fed liquidity is removed.
Chairman Powell held too long the idea of inflation being “transitory.” In November 2021, Powell’s rhetoric emphasized the need to be aggressive when tackling inflation. Powell is in a no-win situation, the dual mandate (stable prices & low unemployment) shapes his focus on combating inflation via the brute force measure of raising aggressively. With inflation in focus, attention to asset prices seemingly is not a Fed priority.
A soft-landing is ideal but unlikely. The bond market is important to watch and with the $95 billion rolling off will it cause the bond markets to become disorderly?
The chart below highlights how deep this sell-off has been.
Good tweet by Cullen Roche outlining the wealth destruction
During market turmoil, the only salivation is to have a long-term orientation. For me, Warren Buffet is the ultimate long-term investor. I thought it would be worthwhile to review some nuggets of wisdom from the Oracle. Warren Buffet is arguably the greatest investor of all time but more impressive is his charm, humbleness, and integrity have remained intact. Through the years Berkshire Hathaway letters have become a popular read by the investment community. The letters recap Berkshire’s yearly financial performance but interwoven is Warren’s perspective on the current business climate and investment landscape. These letters reveal Buffet’s charm and ability to think long-term which is needed to be successful in life and business. Below are five timeless quotes from the Oracle and further proof that his business and investment principles can aid anybody.
One of the lessons your management has learned — and, unfortunately, sometimes re-learned — is the importance of being in businesses where tailwinds prevail rather than headwinds.
1977 Shareholder Letter
Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.
1978 Shareholder Letter
Berkshire’s economic goal remains to produce a long-term rate of return well above the return achieved by the average large American corporation. Our willingness to purchase either partial or total ownership positions in favorably-situated businesses, coupled with reasonable discipline about the prices we are willing to pay, should give us a good chance of achieving our goal.
1982 Shareholder Letter
Whatever the future holds, I make you one promise: I’ll keep at least 99% of my net worth in Berkshire for as long as I am around. How long will that be? My model is the loyal Democrat in Fort Wayne who asked to be buried in Chicago so that he could stay active in the party. To that end, I’ve already selected a “power spot” at the office for my urn.
1998 Shareholder Letter
Our lack of tech insights, we should add, does not distress us. After all, there are a great many business areas in which Charlie and I have no special capital-allocation expertise. For instance, we bring nothing to the table when it comes to evaluating patents, manufacturing processes, or geological prospects. So we simply don’t get into judgments in those fields.