Lessons Learned from Warren Buffet

We recently sat down with Dominic Nolan, CEO of Aristotle Pacific Capital, to get his insights into what made the retiring Warren Buffett a legendary investor, plus the latest moves in the equity and bond markets, the strength of the economy, Fed expectations, and opportunities in fixed income. We finished with a random round of questions and personal reflection.

Market Performance: Total Return

Let’s start with markets. Equities and below investment-grade bonds roared back in May. What happened?

I think at a base level, we got a line of sight into the trade deals, which was a big relief for markets. Last month, the U.K. revealed the primary elements of a tariff deal with the U.S., plus it’s been reassuring to the markets that Treasury Secretary Scott Bessent appears to betaking the lead on President Trump’s tariff policies instead of trade hawks such as White House trade adviser Peter Navarro. What we’ve been seeing is the hard line the administration initially took on tariffs has softened. It signals to the market that the line isn’t as firm as they feared. In my opinion, all of this led a relief rally. If you look at the returns in May, the S&P 500 Index was up 6.3%, with tech leading the way with returns of over 8%. For the year, the S&P ended May in positive territory, up about 1%.

What about fixed income?

Rates went up, which meant duration was generally a headwind. The Bloomberg U.S. Aggregate Bond Index was down 72 basis points, but for the year, most fixed-income asset classes are up roughly 2.5%. Generally speaking, balanced portfolios are up about 2% for the year.

Mag 7

And the Magnificent 7?

May was a great month. Six of the Mag 7, Apple being the exception, had significant gains after a rough start to the year. To give you a sense of the snapback that we saw last month, the average Mag 7 stock was down 15% at the end of April. Now, that number sits at only -1.35%.

U.S. Treasury Yield Curve

Last month, we talked about a potential buyer strike by central banks in the U.S. Treasury market. Where has volatility been in the yield curve so far in 2025?

With the Fed staying put, the short maturities haven’t seen much volatility from a yield standpoint. The volatility is very much in the belly of the curve. The convexity and volatility on price around the 3-year and 10-yearare substantial; we’ve seen as much as a 100-basis-point swing in the belly, which given the anchoring on the front end is a significant amount of rate volatility for bond investors. And that has to do with the uncertainty over tariffs. Are we going to recession due to the trade war? Are we going to have inflation or economic slowdown because of the tariffs? I think markets will be unsettled until that picture comes into better focus

Fed Futures

In light of that uncertainty and the trade war, do you think the Fed will sit on its hands this summer and maybe the rest of the year?

Back in January, market expectations were for the Fed to cut in May or June with two more cuts after that. But with the Fed continuing to vow that they’re going to remain data dependent, it tells me they most likely stay put for the summer. Three cuts are still expected, but expectations are for them to be pushed out later in the year with the first cut in September, not June. But as we’ve seen lately, this could change quickly.

Economic Dashboard

We’re now two months past “Liberation Day” when Trump announced his full tariff plan. Has the impact of the trade war flowed yet into the hard data?

‍I think the short answer would be yes, but it mostly centers around GDP. Right now, Atlanta Fed GDPNow has second quarter GDP at a pretty robust 4-plus percent. Keep in mind, GDP was negative in the first quarter. To me, the economy is calibrating back to an average of 2% to 2.5%. But with most of the tariffs delayed 90 days, I think there’s activity to get either orders or consumption done now. That’s how I think we’re seeing it in the hard data. As it relates to inflation. I find it interesting that at the beginning of the year, inflation was sitting at 2.5%, and we didn’t know if it was going to go back to 3% or down closer to 2%. For the trailing 12 months, inflation is now down to 2.3%. That’s important because it gives the Fed a little more wiggle room if they want to cut. As it relates to consumer confidence, that’s come slightly off the bottom from last month. And the jobs picture right now is uncertain. When I think about the economy over the next six months, it’s very much the uncertainty of the global trade and jobs that are important to watch.

Fixed-Income Yields and Year-to-Date Returns

Now let’s talk bonds. Where are you seeing opportunities in fixed income today?

It’s interesting to me that no one has really been wrong or right on a fixed-income asset class this year, in part because the Bloomberg US Aggregate Bond Index is up 2.45%, Treasuries are up 2.51%, short-term bonds are up to 2.39%, investment-grade bonds are up about 2.26%, bank loans are up 2.14%, and high-yield bonds are up2.68%. The returns have been pretty much even for most fixed-income asset classes. The yield still favors floating rate. If you were to incorporate rate volatility, the fixed-income winner this year has been short duration, and that’s really bank loans and short-term investment grade. I’m very much in the camp that if we hit a recessionary patch, then you want duration, which is going to be a tailwind. If the economy remains strong and the Fed stays anchored, I expect bank loans to win this race over the next six months. But I’ll state it again, it’s going to be very dependent on the tariff and the job situation. Right now, I think diversification is the way to go, but do not lose sight of the bank-loan trade.

Lessons Learned from Warren Buffett

"Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."

Let’s spend some time talking about Warren Buffett, the legendary investor who will be retiring at the end of the year from Berkshire Hathaway, where he spent six decades. What made Warren Buffett Warren Buffet?

Among his many attributes were discipline, a strong work ethic, immense patience, transparency, and guts—and all that has paid off with incredible returns. Just to give you a sense, in 1990 Berkshire Berkshire Hathaway had a market cap of a little over $7 billion. In 2025, it stands at over $1 trillion. So, if you invested $2,000 into Berkshire Hathaway into an IRA in 1990, it would be worth about $220,000 today. And you invested $2,000 a year annually, that would have grown to about $1.8 million today.

Lessons Learned from Warren Buffett

"It's Far Better to Buy a Wonderful Company at a Fair Price Than a Fair Company at a Wonderful Price"

What’s Buffett’s record against the S&P 500 Index?

It’s pretty amazing. Over the past 20 years, the S&P 500 has returned 607%; Berkshire Hathway has returned 839%--or a 38% difference.

Lessons Learned from Warren Buffett

"I Don't Look to Jump Over 7-Foot Bars. I Look Around for 1-Foot Bars That I can Step Over"

What’s a hallmark of his approach that should be highlighted?

The Buffett Indicator, which divides the U.S. market cap by U.S. GDP. In that calculation, any number above one gives him pause. And he views any number below one as a time to buy. In 2008, the number was 0.65, and he wrote a now-famous commentary in which he argued it was a great time to buy U.S. companies. But at the end of 2024, the Buffett Indicator number stood at 1.94, which shows why he’s been a net seller of equities in recent years. But it’s not as though as soon as it goes above one, he’s out. He just starts to pare back on risk and begins raising cash. He’s been very disciplined about this over the decades.

Lessons Learned from Warren Buffet

"Opportunities Come Infrequently. When it Rains Gold, Put Out the Bucket, Not the Thimble.

Warren touches frequently on the power of patience. How has it played out in Berkshire’s equity portfolio?

‍Twenty-one percentage of that portfolio is invested in Apple, and 58% of that portfolio are invested in just four companies (Apple, American Express, Coca-Cola and Bank of America). This would qualify as a non-diversified fund. It takes a lot of courage and belief to be that concentrated and hold for the long term. He also loves transparency in companies. If you look at the names in the equity portfolio, they are understandable business models. We know what Coca-Cola, Bank of America, Chevron, and Moody’s do. These are understandable and time-tested business models. You don’t see anything sexy or new in here.

Lessons Learned from Warren Buffett

"You Should Never Test the Depth of the Water with Both Feet."

Now, you talked about guts a second ago. How does play out with how he invests his cash?

Right now, Berkshire Hathaway holds more cash as a percentage of its portfolio that it ever has and owns about 5% of the T-bill market, which is incredible. It’s a bet. This is an active call to be under invested in equities and take your 4% from T-bills. That’s guts, that’s discipline, it’s active management, all those things. In the first part of the 2000s, he raised a lot of cash, and the market had pretty good years in 2004, 2005, and 2006 when he was heavy in cash. But he put that cash to work when the Global Financial Crisis hit in 2007 and 2008. What he was doing reflected his discipline and long-term strategy.

Lessons Learned from Warren Buffett

"Price Is What You Pay. Value Is What You Get"

Is Abel able?

• President MidAmerican Energy in 1999 which became Berkshire Hathaway Energy
• Shares Buffett’s view of putting cash to work
• Named vice-chairman of non-insurance operations of Berkshire Hathaway in 2018
• Charlie Munger tipped his cards in May 2021 at annual meeting by saying, “Greg will keep the culture”
• Owns about $174 million of outstanding Berkshire Hathaway stock

Sources: FactSet, Wall Street Journal “The Man Preparing for a Berkshire Hathaway Without Warren Buffett” 12/23/2023, Who Is Greg Abel, the Man Preparing to Take Over for Warren Buffett? 5/3/2025, CNBC “Who is Berkshire Hathaway’s Greg Abel? Warren Buffett explained his choice of successor: ‘He understands businesses extremely well’” 5/7/2025.

Greg Abel has big shoes to fill as the next CEO for Berkshire Hathaway. Who is he and how do you think he’ll lead the company in the years ahead?

‍He was president of MidAmerican Energy in the late 90s. He obviously has similar views to Buffett from the standpoint of values and work ethic and was named chairman of the non-insurance operations of Berkshire Hathaway in 2018. Three years later, Charlie Munger, who was vice chairman of Berkshire Hathaway until his recent death, tipped off the succession plan when he told investors in2021, “Greg will keep the culture.” The toughest aspect of this transition is to discern Greg Abel’s talent. We know the values will be there, and the work ethic is there. But is he as talented in investing as Charlie and Warren? Those are really big shoes to fill. How will he respond when he’s the number one? It’s very different than being the number-two person.

It’s time for a random round. I’ll give you a word or phrase, you tell me the first thing that comes to your mind. Here goes: Gold versus bitcoin this year.

Bitcoin recently hit $111,000, which was crazy to me. Bitcoin is winning this year, but gold was ahead for a period of time.

Warren Buffet’s advice to not invest in crypto.

‍As a whole, I think it makes sense. But remember, he also stated that about tech 25 years ago. He thought tech companies were overvalued, and the metrics weren’t being appropriately measured. But he eventually changed his mind, which has an investor is a very powerful trait. Now, as we mentioned, Apple’s his number-one equity holding,

Elon Musk, post-DOGE. ‍

Personally, I think Elon has done a lot for this country. People may take offense to his style, and I can definitely understand that. But he’s always spoken his truth, and that I can appreciate.

The “One, Big, Beautiful Bill” that’s before Congress now.

‍It depends on your definition of “beautiful.” Do you think beautiful means the government is spending less money? Or does beautiful mean the government is spending more money? I can say it’s going to be big, and it’s a bill. But beautiful will be in the eye of the beholder.

Office vacancies at 19% nationwide.

‍During the pandemic, office vacancies peaked at around 20%. Today, New York City’s down to 12%, but San Francisco’s almost at 30%. We’re seeing a wide discrepancy across the nation. I think a lot of industries are having their workers come back, so I’d expect it to drop a little bit, but I don’t see it going back to where it was pre-COVID.

Gen Z and alcohol.

‍Gen Z is drinking a lot less. They’re doing a lot of things less, but that’s all being offset by time spent on the phone. Is that good or bad? That depends on perspective.

Tax free tips.

‍I think it’s a great concept that is ripe for abuse. Let’s say you have an electrician come out, and he says, “I’ll charge you a hundred bucks, but it’s a $1,000 job. So, here’s an invoice for $100 in addition to a $900 tip.” Those are things that will  be difficult to root out if this legislation gets passed. I think the idea has merit, but its execution is extraordinarily difficult.

Last one: NFL players allowed Olympic flag football.

My first thought is: let’s hope no one gets hurt. There are some beasts out there—they’re fast, strong and athletic and we’re letting the best in the world play. So hopefully no one gets hurt.

Let’s close with a personal reflection.

In 2020, Warren Buffet made a graduation speech at the University of Nebraska, and here were four essential takeaways from that speech. One, pursue passion over paychecks. He said, “Look for the job you would take if you didn’t need a job.” Two, embrace lifelong learning. Here’s how he put it: “There’s nothing that beats reading. The truth is by reading, you can have lunch with Ben Franklin or every great personality in the history of the world.” Three, develop good communication skills—learn to write and speak effectively. Personally, I think that is hugely important for kids graduating. And lastly and probably most importantly, measure success by relationships, by the love and respect of family and colleagues, not wealth or fame. He reflected, “I’ve seen loads of people who had maybe more talent, more money, more fame, but if they didn’t have that, it was very hollow.” I believe his pearls of wisdom are one of the many reasons why he’s a great American, and obviously the data shows he’s one of the best investors ever.

The Atlanta Fed’s GDPNow is a forecasting model that provides a "nowcast" of GDP growth.

Bank loans (or floating-rate loans) are financial instruments that pay a variable or floating interest rate. A floating rate fund invests in bonds and debt instruments whose interest payments fluctuate with an underlying interest rate level.

Basis points, also known as bps, are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.

A bond is a fixed-income instrument and investment product where individuals lend money to a govern mentor company at a certain interest rate for an amount of time. The entity repays individuals with interest in addition to the original face value of the bond.

Duration is often used to measure a bond’s or fund’s sensitivity to interest rates. The longer a fund’s duration, the more sensitive it is to interest-rate risk. The shorter a fund’s duration, the less sensitive it is to interest-rate risk.

Fixed income refers to assets and securities that pay a set level of income to investors, typically in the form of fixed interest or dividends.

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. The nominal GDP growth rate compares the year-over-year (or quarterly) change in a country’s economic output to measure how fast an economy is growing. Real GDP is GDP adjusted for inflation.

High-yield bonds are debt securities, also known as junk bonds, that are issued by corporations.

Investment grade refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's.

Market Cap is the current market value of all of a company's outstanding stock shares. It is often used to indicate a company's size and worth in comparison to its peers.

Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return.

The S&P 500 Index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.

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