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Warren Buffett: Why stocks beat gold and bonds

finance.fortune.cnn.com

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Re: Warren Buffett: Why stocks beat gold and bonds

#31

Post by MikeCapone »

spenrose wrote: post #7
MikeCapone wrote: post #4

Earlier quoted context omitted.

I don't think he's rejecting anything, just making a general point about investing in something with cashflow (a business, farmland) vs speculating in something that is only worth what others will pay for it (gold, commodities)

Did you follow the link? Buffet's recommendation comes with a long time horizon, and the asserion that he can predict stability: "Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle." I think he's right about people, but in the statement…

I've been following Buffett for a long time. I've read all of the BErkshire letters and most of the partnership letters. I've read 2 biographies of him and watched and read dozens of interviews.

He was making a general abstract point, not a specific prediction. That's just the way he talks, and maybe it could be confusing if you are not used to it, but that still what it is.

And btw, MidAmerican Energy, a Berkshire owned utility, is the biggest investor in wind power in the US and just bought huge solar power projects.

Re: Warren Buffett: Why stocks beat gold and bonds

#33

Post by EricDeb »

shingen wrote: post #9

He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…

So what is your investment recommendation then? Avoid the market and invest in Gold?

Re: Warren Buffett: Why stocks beat gold and bonds

#34

Post by [deleted] »

ericdykstra wrote: post #3

Same conclusion from a slightly different angle: You trade risk for expected payout. Imagine each of these scenarios is like flipping coins with different values attached. At the end of the year, you flip one coin: - Bonds: Heads, you gain 1%. Tails, you gain 1%. If it lands on it's side, you lose everything (government default) - Stocks: Heads, you gain 15%. Tails, you lose 10%. A lot more risk here, but the expecte…

[deleted]

Re: Warren Buffett: Why stocks beat gold and bonds

#35

Post by gjm11 »

shingen wrote: post #29
klochner wrote: post #6

He omits the only valid reason any non-speculator would own gold - it holds it's value through times of political turmoil - holds it's value over millenia rather than decades or centuries. A coup d'etat may result in seizure of private companies, rendering your stock worthless, but not touching the value of gold. It would be speculating to put all your assets into gold, but a small amount is like an insurance policy.…

Unfortunately it is worth noting that FDR instigated the greatest private wealth seizure in the history of the planet when he stole all of America's privately held gold with force. If you've got a government that is willing to plunder like that, there's no great way to keep your wealth safe except to get yourself and your wealth out of the country.

> stole all of America's privately held gold

Except for the bit where he, y'know, paid for it at the then-prevailing rate. (Which was defined by law, since at that point the US dollar was still on the gold standard.)

Re: Warren Buffett: Why stocks beat gold and bonds

#36

Post by adabsurdo »

klochner wrote: post #6

He omits the only valid reason any non-speculator would own gold - it holds it's value through times of political turmoil - holds it's value over millenia rather than decades or centuries. A coup d'etat may result in seizure of private companies, rendering your stock worthless, but not touching the value of gold. It would be speculating to put all your assets into gold, but a small amount is like an insurance policy.…

i'm having a hard time imagining a realistic scenario where political turmoil is strong enough to make all stocks worthless, yet my gold bullions at the bank are still mine. unless you think you could keep a meaningful amount at home, and then how will you protect it?

if the nazis invade, if the bolsheviks take over, if society breaks down and roving bands of cannibals are out there plundering, chances are your gold is either not yours anymore, or there is no society to trade it with.

Re: Warren Buffett: Why stocks beat gold and bonds

#37

Post by johngalt »

shingen wrote: post #9

He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…

"In reality, the Dow is not at 13,000 today as we knew 13k to be back in 1998/99 during the huge stock market bubble. Inflation has eroded that nominal value by at least half. The Dow is more likely at 5,000 to 6,500 depending on what you believe real inflation has been over the past 14 years (not the Fed's bogus CPI numbers)."

...

"Nearly all of his big market gains peg to one period of time, the 1970s, when stocks were once-in-a-generation cheap; his timing was brilliant, but it was an exceedingly rare scenario."

You are on to something here, and you don't recognize it.

Re: Warren Buffett: Why stocks beat gold and bonds

#38

Post by InclinedPlane »

shingen wrote: post #9

He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…

And if you'd bought gold at its peak in 1980 you'd still be down money, even 3 decades later.

Adjusted for inflation gold has gone up by a factor of about 4, but almost all of that has been within the last 10 years.

Anyone who thinks that gold is a dandy long-term investment is just as deluded as all of the fools who thought "this time it's different" about the last speculative real-estate bubble.

Edit: to put a finer point on it, if you would have bought gold in 1850 and sold it at any time recently except for during the speculative bubble of the late 70s or the last decade you would have lost money, around a quarter of your initial investment, or around negative 0.2 percent interest rate. If you would have bought gold at its low point in 1919 and held on to it for 80 years then sold it during some time in the 90s you would have just slightly more than doubled your money, for a whopping return of 1.2% per year.

Re: Warren Buffett: Why stocks beat gold and bonds

#39

Post by Symmetry »

rubashov wrote: post #23
kahawe wrote: post #16

In the 90s everyone rushed the IT shares and then the dotcom bubble burst. In the first decade of our new millennium, real estate and all sorts of weird financial products somehow building on real estate were THE best way to invest money because nothing can happen, you have a house standing right there, right?? Then that bubble burst. Now, you'd think people would have learned by now but no... sure as hell now everyo…

> everyone rushes Who is rushing to buy gold? I'd be surprised if more than 1% of households have meaningful gold exposure.

I'd be surprised if more than 1% of household had actually held tech stocks in 2000, also.

Re: Warren Buffett: Why stocks beat gold and bonds

#40

Post by dmm »

cube13 wrote: post #27
dmm wrote: post #17

Earlier quoted context omitted.

I think he was talking about a small amount of gold. Twenty-thousand dollars worth could fit in your hand and easily be smuggled in clothes, luggage, etc. That's pretty handy if you had the flee the country from nazis(or whatever) that have stolen all of your other assets. Admittedly that's a pretty unlikely scenario.

It's even more unlikely because you then have to find a buyer that's willing to pay market price for the gold wherever you end up at. You'll be reduced to selling it for whatever people are willing to pay.

Gold is pretty easy to sell and even if you got a terrible price for it, you are still better off than without it.
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