There’s a lot that goes on in the investment industry we don’t get. Like, why did Wall Street outfits known for years as “brokerage firms” suddenly become “banks”? Or why do a bunch of Department of Labor bureaucrats think they know anything about giving investment advice? And the real head scratcher…why do a couple of zillion otherwise normal people descend on Omaha once a year and take selfies with life-size cardboard cutouts of Warren Buffett?
Berkshire Cotton Manufacturing Company and the Hathaway Manufacturing Company trace back to late 19th Century Massachusetts
It’s certainly not for the actual business of the Berkshire Hathaway Inc. annual shareholders meeting. Heck, in less time than it took for Warren to lick down a Dairy Queen popsicle, the company’s board re-elected 14 directors and voted down two dopey shareholder resolutions – one about methane and one about sustainability reports. And, oh yeah, somewhere between the first sip of Cherry Coke and the last bite of See’s candy, Berkshire reported a $1.14 billion loss in the first quarter.
Shares in the Berkshire Hathaway textile company were trading at $7.50 when Warren Buffett started buying the stock in 1962
Always cool in his Fruit of the Looms, the company’s Chairman (who also traces back to late 19th Century we think) attributed Berkshire’s first loss since 2009 to an accounting rule change on unrealized investment losses. The new regulation required the company to report $6.2 billion unrealized losses in its $170 billion equity portfolio, regardless of whether it planned to sell anything or not. We doubt the folks buying Berkshire tchotchkes (at discounted prices!) were thinking about their Wells Fargo and Coca-Cola investments.
Among other things, BRK subsidiaries produce cowboy boots, floor enamel, Ginsu knives, ear-piercing tools, diamond rings, encyclopedias, uniforms for police officers, and shoulder pads for football players
But this thing is called a “Woodstock for Capitalists,” and for good reason. Beyond the capricious swing in bottom-line results, the sprawling conglomerate is making sweet money. BNSF Railway cars full of it. Operating earnings were, in fact, reported to have risen to $5.29 billion from $3.56 billion in the year prior. And somewhere outside the Netjets display for people who will never fly, Berkshire is sitting on more than a hundred billion – that’s $100,000,000,000 – in cash.
The last of Hathaway’s historic textile operations were shut down in 1985
So, maybe these folks in the Berky Lounge Pants are on to something. Where else can you get a tin of mints, lip balm, and a “paint-your-own” Warren Buffett piggy bank for buying what acts like a broad-market ETF? Wait…isn’t that the Oscar Meyer Wienermobile over there? Why, yes. Yes it is.
What the equity markets have been doing…
|INDEX||Friday’s Close||Two-Week Point Change||Year-to-Date Change|
What the fixed income markets have been doing…
|FIXED INCOME||Period Change||YTD||12 Months||Yield|
|U.S. Investment Grade||+0.1%||-(3.5)%||+0.7%||4.0%|
|U.S. High Yield||+0.2%||-(3.0)%||+3.2%||6.3%|
What the modern alloy of Thomas Edison, Henry Ford, Howard Hughes, and Steve Jobs is saying…
“Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.”
“If following a ‘company rule’ is obviously ridiculous in a particular situation, such that it would make for a great Dilbert cartoon, then the rule should change.”
“Communication should travel via the shortest path necessary to get the job done, not through the ‘chain of command’. Any manager who attempts to enforce chain of command communication will soon find themselves working elsewhere.”
- Elon Musk, founder, CEO, and lead designer of SpaceX; co-founder, CEO, and product architect of Tesla; and co-founder and CEO of Neuralink.
What the numbers have been saying…
- 4 billion
The estimated number of options contracts that were cleared in the first quarter, up 33% from a year ago, marking one of the busiest trading quarters in history.
What the pundits have been saying…
“Elon may turn things upside down in some areas. I don’t think he’d want to take us on in candy.”
- Warren Buffett, Berkshire Hathaway’s chairman and chief executive, responding to jabs from Tesla CEO Elon Musk
What Fund Architects has been doing and saying…
So, corporate earnings – now on track for their best quarter since 2010 – came in stronger than expected across the period and most of the big indexes went down. Amid the odd crosscurrents, the technology sector was a standout performer, while telecommunications and healthcare lagged.
In this environment, we’re not at all surprised, maybe even a bit pleased, our systematic process has us currently holding a little higher cash weighting to reduce risk and downside potential. For May, the Multi-Factor Ranking System has kept each of the Fund Architects Portfolios in a relatively conservative position.
Global ETF Portfolio Rankings
This month, the Global ETF portfolio is maintaining its 35% cash weighting, while swapping International Real Estate for Global Utilities.
Conservative Global ETF Portfolio Rankings
On the fixed income front, Senior Floating Rate Loans – which don’t have sensitivity to increasing interest rates – has been ranked highest by our system again in May. Convertible Bonds also look favorable as they provide decent upside potential with lower risk than stocks.
The Foundations Portfolio is favoring the U.S. dollar versus gold, no surprise given the recent strength in the currency, and U.S. Treasuries over U.S. equities, again no surprise given the S&P 500’s volatility. The resulting Portfolio emerges as a well-balanced mix of non-correlating assets, which collectively should hold up nicely in the event of a stock correction.
First Trust All-Region Portfolio
The First Trust All-Region Portfolio is showing strength in U.S. Small-Cap equities and, interestingly enough, Japanese equities. This seems to be a better environment for international equities as a whole, with Europe – which did not quite make the top of the rankings this month — a notable standout.
Our investment thesis is that a portfolio’s asset allocation — its mix of stocks, bonds, cash, and alternatives — is the most influential component of returns. We’re always striving to provide investors with the best results possible…sometimes that means playing it safe and waiting for the right opportunities.
The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.