Buffett ignores Gross’s new normal, pities bond investors

Warren Buffett, chairman of Berkshire Hathaway Inc., said he ignores macroeconomic forecasts such as Bill Gross’s “new normal” when investing and sympathizes with people who stuck with bonds amid low interest rates.

“It doesn’t make any difference to me what he thinks about the future,” Buffett, 82, said of Gross, manager of the world’s biggest bond fund, at Berkshire’s May 4 shareholders meeting in Omaha, Nebraska. “I have a general feeling that America will continue to work well.”

Gross’s firm, Pacific Investment Management Co., coined the term “new normal” in 2009 to describe an era of lower returns, heightened regulation and shrinking U.S. clout in the world economy following the 2008 financial crisis. The view contrasts with Buffett’s optimism about the country where he and Berkshire Vice Chairman Charles Munger, 89, built a business valued at more than $260 billion.

“I like Bill Gross,” said Buffett, the second-richest man in the U.S. “My own guess is that people will do very well owning good businesses if they don’t pay too much for them.”

Buffett employed that strategy for more than four decades as he accumulated the largest equity stakes in companies such as Coca-Cola Co. and Wells Fargo & Co. and built insurance operations. He reshaped Berkshire in the past 15 years by buying a chemical maker, energy companies and a railroad.

First-quarter net income jumped 51% to $4.89 billion or $2,977 a share, as profit improved at the largest operating segments and investment gains added to earnings, Berkshire said May 3. The company closed at an all-time high that day before results were announced. The shares climbed 2.1% to $166,388 at 9:34 a.m. in New York.

Compounding Money

“A lot of people in the business are trying to pick the next macroeconomic event, because it’s sexy,” said Richard Cook, co-founder of Cook & Bynum Capital Management LLC in Birmingham, Alabama, which oversees Berkshire shares. Buffett and Munger were communicating that “predicting the economic future isn’t the way to compound money.”

Shareholders asked Buffett and Munger several times for their views on the economy and Federal Reserve at the annual gathering, which draws tens of thousands of people. The central bank has kept interest rates near zero since December 2008 to bolster the economy. It also embarked on a bond-buying program that ballooned its balance sheet to more than $3 trillion.

“I feel sorry for people that have clung to fixed-dollar investments,” Buffett said. Savers depending on bond payments are “victims” of policies to lower borrowing costs, he said.

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