Warren Buffett is the guy who said “be fearful when others are greedy, and greedy when others are fearful.” In today’s environment, fear is reflected by the ridiculously low bond yields that investors are prepared to accept rather than investing in equities or other risky assets. It is not terribly surprising then, that Buffet is tweaking Berkshire’s bond portfolio to reflect an expectation of inflation and rising interest rates. This article notes that Berkshire’s bond portfolio has shifted towards shorter-maturity bonds, which are less sensitive to a rise in rates than longer-maturity bonds.
The article linked above is from The Motley Fool (TMF). The one beef that I have with this article is that it reinforces the incorrect idea that stocks are a ‘hedge’ against inflation. This is a common mis-perception. While it is true that over long periods of time stocks have tended to generate higher returns than bonds and thus to offset the eroding purchasing power of inflation, there is not a good correlation between inflation and stock returns. For a real hedge against inflation, you should use real return asset classes, such as, for example, REITs, TIPS and commodities.