Global Courant 2023-05-11 16:55:00
According to the world’s most well-known investor, the “incredible period” for the US economy has come to an end in recent months. And even his own company, Berkshire Hathaway, isn’t immune.
“Most of our companies will report lower revenues this year than they did last year,” Buffett warned at Berkshire’s annual meeting on Saturday.
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That’s a somewhat surprising statement from a man who has famously been ultra-bullish about the US economy.
But continued high inflation, higher interest rates and the ongoing banking crisis have all made Buffett much more concerned about investment gains in the year ahead. His partner, Charlie Munger, echoed this sentiment. “Get used to earning less,” he said.
The duo’s pessimism about the economy was also reflected in the company’s investment portfolio.
Berkshire Hathaway was a net seller of stocks in the first quarter of 2023, earning $10.4 billion from stock sales net of purchases. The company’s cash holdings grew from $128.6 billion at the end of last year to approximately $130.6 billion.
Investors should probably heed the warning from the Oracle of Omaha, but that doesn’t mean pulling out of the market completely is the right strategy.
Instead, recession-resistant assets and international stocks could diversify a portfolio enough to resist those downward forces.
Wallet shockproof
Some service sectors are relatively separate from the rest of the economy. Typically, these companies are backed by a wealth of hard, recession-resistant assets that hold their value during waves of inflation.
Caretrust REIT (CTRE) is a good example. The company owns and operates healthcare real estate across the country. With more than 21,795 hospital beds across 23 states and 204 properties, this real estate investment trust could serve as a loose proxy for US private healthcare.
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The stock offers a dividend yield of 5.7% and could be an ideal anchor for a portfolio during a recession.
International stocks
According to a recent Bloomberg survey of economists, the probability of a U.S. recession in 2023 is a whopping 65%. The risk is also high in other developed markets such as Britain, France, New Zealand and Canada.
But emerging markets are much less vulnerable to a recession. The same study even shows that the probability of a recession in India is 0%.
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Simply put, investors can protect their wealth by investing in foreign stocks. India’s largest private bank, HDFC Bank is listed on the New York Stock Exchange under the ticker HDB. The stock has posted total returns of more than 4,300% since going public in 2001 and outperformed most U.S. banks during the 2008 financial crisis.
India is not the only option. US investors can bet on Chinese, Singaporean and Indonesian stocks via ETFs or American Depositary Receipts.
Cash
With Berkshire boasting a $130 billion cash stash at the end of the first quarter, it seems that Buffett’s asset of choice right now is US Treasury bills. The Oracle significantly increased its holdings of Treasury bills and cash equivalents during the quarter.
That could also be a smart move for retail investors as interest rates on savings accounts are rising.
You might even want to get creative with your cash: Apple’s new high-yield savings account offers a juicy 4.15% annual return. The company claims the rate is ten times higher than the national average. In fact, the yield is higher than the dividend yield on the S&P 500 or a five-year US Treasury bond.
There’s no other way to put it: cash is king in 2023.
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This article provides information only and should not be taken as advice. It comes without any kind of warranty.
