Warren Buffett Has Warned Investors About This for Decades. The Bond Market Is Making His Advice Matter Again.
High interest rates are becoming one of the market's biggest risk factors.
Overview
Warren Buffett has spent decades warning equity investors about the risks posed by interest rates and how they can significantly influence the direction of stock prices. He's offered two quotes in particular that illustrate this.
In a 1999 Fortune article, Buffett explained: "These act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull." At Berkshire Hathaway's 2013 meeting, he said: "Interest rates are to asset prices, you know, sort of like gravity is to the apple."
Details
For most of the past several decades, this hasn't been a problem. Since the early 1980s, rates have mostly been either falling or at incredibly low levels. Both scenarios reduced the attractiveness of fixed income and gave investors an incentive to own stocks.
Source
Originally published at www.fool.com.