In the 1978 Annual Report of Berkshire Hathaway (BRK), Warren Buffett wrote,"pension managers, a group that logically should maintain the longest of investment perspectives, put only 9% of net available funds into equities - breaking the record low figure set in 1974 and tied in 1977." At the same time, Chairman Buffett was aggressively purchasing equities for BRK. But with flawlessly poor timing, the pension managers stumbled badly on their investing responsibilities as equites have generated superior results since those three years.
Those observations came to mind as a recent headline from the WSJ read, "Public Pension Plans Continue to Shift Into U.S. Stocks: 47% of plans’ assets were in U.S. stocks in third quarter, the most since 2007." The article had this graph illustrating pension allocations:
This graph illustrates that pension managers have hardly improved on their timing in the past 40 years. They continue to underweight equities at low prices and lift allocations at higher prices. These timing missteps compound an even more fundamental error. Why would managers with the "longest of investment perspectives" heavily invest in fixed income assets? With investment thinking like this, it is little wonder that pension plans are looking for a government bailout.
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