Warren Buffett's advice to investors: Stick with stocks
He's said it before and he's saying it again. In his widely read annual letter to shareholders, Warren Buffett, Berkshire Hathaway's chief executive, emphasized that bonds are risky and that investors should stick with equities—even though they can pose greater risk in the near term.
"It is a terrible mistake for investors with long-term horizons -- among them, pension funds, college endowments and savings-minded individuals -- to measure their investment 'risk' by their portfolio's ratio of bonds to stocks," Buffett wrote. "Often, high-grade bonds in an investment portfolio increase its risk."
The billionaire investor offered the recommendations not long after the stock market's biggest single-day drop in more than six years. He also urged investors not to use leverage to invest in stocks, saying it can lead to irrational behavior when times are volatile.
"Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary," he wrote, adding: "An unsettled mind will not make good decisions."
Buffett's yearly missive included an explanation of Berkshire's 2017 results, which included the conglomerate tallying a more than $29 billion gain for 2017 due to the tax overhaul passed by Congress late last year. The gain, which was mildly offset by $1.4 billion in taxes paid on repatriated foreign earnings, made up almost two-thirds of Berkshire's $44.9 billion in net earnings for the year.
Buffett in the past has repeatedly called on Congress to raise taxes on the wealthy, saying people like him should be paying more. He refrained from revisiting that call in his yearly update.
Buffett also refrained from calling stocks overvalued, as he's done in past yearly updates, but he did say acquiring other companies had gotten overly expensive. His view that acquisitions need to come with "a sensible purchase price" prevented Berkshire from making a big deal in 2017, he wrote.
While lower interest rates allowed acquirers to borrow money to finance their deals, Buffett dismissed the notion he would join the trend. "At Berkshire, in contrast, we evaluate acquisitions on an all-equity basis, knowing that our taste for overall debt is very low." Referring to Charles Munger, Berkshire's vice chairman, Buffett stated that "both of us believe it is insane to risk what you have and need in order to obtain what you don't."
Buffett also said his company does have a plan for when he's no longer at the helm, despite the 87-year-old's stance that he has "never felt better."