Buffett's bond-averse approach boosts Berkshire value

Warren Buffett's preference for buying stocks and whole companies rather than bonds is helping Berkshire Hathaway Inc. weather a spike in interest rates better than other insurers.

Book value -- a measure of a company's assets minus its liabilities -- rose 2 percent to about $122,900 per Class A share in the three months ended June 30, Omaha, Neb.- based Berkshire said Friday.

Insurance competitors including Allstate Corp., American International Group Inc. and Travelers Cos. posted second-quarter declines in book value.

Interest rates surged in the period after Federal Reserve chairman Ben S. Bernanke signaled the central bank could begin to taper its $85 billion-a-month bond purchases this year. That rise in rates wiped billions of dollars from insurers' portfolios, which consist mostly of fixed-income securities. In most cases, bond prices fall as interest rates rise.

Berkshire, where Buffett is chairman, chief executive and the largest shareholder, owns stocks valued at more than three times as much as bond holdings.

"He just plays a different game," Tom Lewandowski, an analyst at Edward Jones & Co., said. "He can take more risk in his investment portfolio" than other insurers, because Berkshire keeps a lot of cash on hand and has other sources of earnings.

Buffett told investors in February 2012 that bonds were among the "most dangerous" assets. Yields, he said, weren't enough to compensate for the risk of inflation. He reiterated that view in May, saying that Berkshire wasn't buying corporate debt because of low rates.

That helped maintain value at Berkshire in the second quarter as bonds fell. Yields on 10-year Treasuries climbed to 2.49 percent from 1.85 percent in the period, while the Standard & Poor's 500 index advanced 2.4 percent.

Buffett favors concentrated bets on stocks, not bonds. Four holdings -- Wells Fargo & Co., Coca-Cola Co., American Express Co. and International Business Machines Corp. -- accounted for almost 60 percent of the company's $103.3 billion equity portfolio at the end of June, Berkshire said in Friday's filing.