2023-11-06 15:08:26 ET
As we come to the end of free money, the normalization of interest rates, and the return to fundamentals, opportunities in growth and value will lead the market, said Chris Davis, chairman and portfolio manager of Davis Advisors.
The long-time Berkshire Hathaway B ( NYSE: BRK.B ) said that for over a decade, the price of money was distorted, manipulated, and held artificially down as “an enormous amount of money was being printed.”
“We’re just in the early innings of this unwinding,” he said. “It is a time when the people who imagine somehow that we're going back to what we've lived through in the last decade are absolutely out of touch with reality.”
He said that investors will have to focus on characteristics like durability and resiliency and be prepared to work with financial analysis that doesn’t work.
“All value investing is based on a discounted present value,” said Davis. “If there's no discount rate, it doesn't work.”
He also explained that the repricing of money is a return to normalcy.
“There is going to be a hangover from popping the biggest bubble I think any of us will ever live through — the bubble of the fixed income markets.”
This has already been seen during the regional banks ( KRE ) crisis, when they grossly mismanaged their balance sheets, he said, and it will affect private equity, venture capital, certain parts of commercial real estate, and private capital markets.
“There is an enormous amount of risk that still needs to be repriced in light of the fact that the cost of capital, once again, needs to be factored in,” said Davis.
His top stock holdings include Meta ( META ), Berkshire Hathaway B ( BRK.B ), Wells Fargo ( WFC ), Amazon.com ( AMZN ), and Capital One ( COF ).
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The new normal will be an environment where fundamentals matter again