Berkshire Avoids Rout as Buffett Sidesteps Bonds

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

Book value rose 2 percent to about $122,900 per Class A share in the three months ended June 30, Omaha, Nebraska-based Berkshire said Aug. 2. Insurance competitors including Allstate (ALL) Corp., American International Group Inc. (AIG) and Travelers (TRV) Cos. posted second-quarter declines in the measure of assets minus liabilities.

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 wiped billions of dollars from insurers’ portfolios, which consist mostly of fixed-income securities. Buffett’s firm 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 in an interview. “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, Berkshire’s chairman, chief executive officer and largest shareholder, 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.