The Price of Berkshire Cloth

March 3, 1980
Berkshire Hathaway Shareholder Letter

However, our unwillingness to fix a price now for a pound of See’s candy or a yard of Berkshire cloth to be delivered in 2010 or 2020 makes us equally unwilling to buy bonds which set a price on money now for use in those years. Overall, we opt for Polonius (slightly restated): “Neither a short-term borrower nor a long-term lender be.”

As a seller of Berkshire cloth, hindsight shows that locking in that 2015 price in 1980 would have been a fantastic plan. The cloth did not continue to inflate as most expected. That might even be the understatement of the year.

The same goes for bonds. Warren Buffett couldn't embrace long-term bonds in 1980. He can't embrace them now. At least he's consistent.

Put another way, I don't think Warren Buffett really knows where inflation or bond yields will head from here, any more than he did in 1980. Without knowing both of these two things simultaneously, it makes it nearly impossible to make an informed decision about current bond value.

Not saying he's wrong to say that long-term bonds are overvalued. Not saying he's right either. Just saying that as a long-term holder of long-term inflation protected bonds, I take his long-term bond opinions with a very large grain of salt.