What’s Going On Here?

Berkshire Hathaway reported its fourth-quarter earnings over the weekend, and it looks like Warren Buffett’s investment conglomerate is its own biggest fan…

What Does This Mean?

Investors pay close attention to Buffett’s every move, and it’s easy to see why: his company’s portfolio has, on average, increased by twice as much as the US stock market every year for the last 55 years. And while Berkshire already revealed how it was reshuffling its portfolio last month, it didn’t come clean about its biggest investment of 2020: the company bought back a record $25 billion of its own stock.

Why Should I Care?

For markets: Share buybacks just keep giving.
By buying back its own shares, Berkshire has reduced the number available and, in turn, given its existing shareholders a bigger stake in the business. That effect multiplies if the companies Berkshire’s investing in buy back their own shares, which is why its shareholders now own 10% more of Apple than they did when Berkshire built its position in 2018 – even though it’s sold off some of that original stake since then.

The bigger picture: “Bonds face a bleak future.”
Berkshire’s full-year earnings update is also when Buffett shares his take on the financial markets in an annual letter to shareholders, and he took the opportunity to warn against bonds. He pointed out that the income – or yield – generated by 10-year US government bonds fell 94% between September 1981 and the end of last year, which makes it very likely it’ll rise going forward (it can’t exactly drop much further, after all). And since bond prices move inversely with their yields, a drop in price is probably on the cards. You can see Buffett’s point: bonds have had their worst start to a year since 2013 (tweet this).

This Simple Exit Strategy Could Save Your Portfolio

What’s Going On Here?

The principle behind momentum investing is simple: if the force behind a price move is strong enough, prices are likely to continue moving in the same direction.

At some point, however, the pendulum will reach an extreme, momentum will begin to shift, and market forces will push prices back the other way.

So if you can identify the moment when that momentum turns, then you’ll be able to get out with maximum profit.

And one simple three-question strategy can be an invaluable tool in knowing when that shift’s about to happen.

Simply by getting out of markets when this indicator told you so, you’d have generated more returns than buying and holding the Nasdaq over the past 24 years.

And by applying this strategy in both the dotcom crash and the global financial crisis, you’d have outperformed the index by more than 100%.

So that’s today’s insight: what that three-question strategy is, and what it’s telling you about the markets right now.

Small Wanders

What’s Going On Here?

Goldman Sachs recommends looking abroad to Asian stocks after being all cooped up in the house recently.

What Does This Mean?

Investors are getting more and more anxious that the Federal Reserve might raise interest rates in the US, which would make borrowing more expensive and stocks less attractive. That’s led to a recent sell-off in global stocks, but – according to Goldman – a buying opportunity in the form of Asia’s stocks.

There are a couple of reasons why. For one, the investment bank’s expecting the region to benefit from a strong economic rebound following the pandemic-driven slump. For another, it’s looked at similar periods in history and doesn’t think there’s likely to be another sharp move lower in the region’s stocks even if investors get antsier about interest rates. Put those factors together, and Goldman’s pencilled in a 13% upside for Asia’s stocks (excluding Japan) by the end of the year.

Why Should I Care?

For markets: Energy and insurance could do the best.
Goldman’s particularly keen on a couple of Asia’s sectors. First, energy companies, whose share prices have been lagging both the rising oil price and the broader Asian stock market since the depths of last year’s slump. That should make them cheaper and better placed than most to outperform in the next few months. And second, insurance companies: their stocks have been underperforming the broader market too, and higher rates should lead to higher yields on the bonds in their investment portfolios.

Zooming in: Internet stocks aren’t what they used to be.
Meanwhile, Goldman thinks Asian internet and media stocks – which have been beating the region’s wider market – look expensive. That’s especially true because their valuations tend to fall by more than their rivals when interest rates rise. That might explain why the Chinese stock market – which has been adding more and more internet stocks to its ranks – has dropped by the most of all the region’s stock markets over the last few weeks.

You might also like: How to use exchange-traded funds to invest in Asia.

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