Stocks vs. Bonds vs. ???

Buffett Says ‘Quite Clear’ That Stocks Are Better Than Bonds

How to interpret this statement? A lot of people probably thought it was an endorsement of stocks.

Oct. 5 (Bloomberg) -- Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said equities are a better investment than debt securities. “It’s quite clear that stocks are cheaper than bonds,” Buffett said today at Fortune magazine’s Most Powerful Women conference in Washington. “I can’t imagine anyone having bonds in their portfolio when they can own equities.”

How could anyone dispute this statement? The risk in bonds has been written about far and wide. It's more important to look at what Buffett did NOT say.

He did not:

> Recommend buying stocks;

> Compare stocks and bonds to any other alternative (such as cash; in 1H10 Berkshire continued to build cash at a rapid clip);

> Opine on the long-term returns attainable from either investment;

> Talk about why bonds are a poor investment (interest rates and government printing press) and how that is likely to play out in the future.

I would love to hear more about his opinion on all these things. It's hard to use Berkshire's own investments as an example. Buffett has fewer options when it comes to investing than you or I, and a longer time horizon than almost any of us (because he's looking decades beyond his own lifetime). What's he's saying is always relevant, but what he's not saying is relevant, too.