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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

#71

Post by shingen »

andylei wrote: post #50
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…

> Gold is up 87 fold over 90 years or so Inflation adjusted, its closer to being up 3 fold: http://inflationdata.com/inflation/images/charts/Gold/Gold_i... Meanwhile, inflation adjusted, the S&P500 up more maybe 5 or 8 fold: http://www.tradersnarrative.com/inflation-adjusted-chart-of-... >> On a long term duration, it becomes increasingly difficult to survive even modest inflation and market changes if you look at th…

Stocks are meant to be an investment vehicle, gold is not. The difference is, in an inflationary environment, stocks get murdered in real terms. That was the first line of my initial post in this thread.

The problem with stocks on the smooth sailing point, is that you can have a company that goes bankrupt, and plenty do over 30 years or more. You should look up the rather shocking numbers on how many publicly traded stocks have been vaporized in the last 30 years.

Gold does not go bankrupt, and it will not go to zero (if the last 2,000 years are any indication). Even more specifically, it won't go anywhere near zero.

With stocks you must constantly manage your holdings. With gold you do not have to manage it at all, assuming you didn't go chasing it on a bubble run (which represents less than 1% of the time duration that you could have bought gold over the last 60 years; 1980 for a few weeks for example).

There is a huge time management cost to stocks, most people simply do not have the time to focus on that. Skilled investors certainly do either have the time or the ability.

Re: Warren Buffett: Why stocks beat gold and bonds

#72

Post by InclinedPlane »

shingen wrote: post #60
InclinedPlane wrote: post #38

Earlier quoted context omitted.

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 fine…

You reveal a huge bias by the fact that you selectively pick only an extreme event that spans about 0.001% of 30 years as a prime example. The wild peak of gold in 1980 lasted for days, on a temporary burst higher. The average price of gold in 1980 was $615 or so. Your scenario requires that buyers of gold do not cost average over time, but rather that they only buy at very specific points in time and only sell at ve…

Gold is subject to speculative bubbles just as housing and stocks are. Gold is not a wealth protector unless you are lucky, but that's true of anything. If you buy gold during a speculative bubble then gold is more likely to be a wealth destroyer. If you buy gold today, near the peak of a classic and obvious speculative bubble then you are not doing yourself any favors.

Worse yet, gold tends to return to a constant value after speculative crashes. Compare that to property and stocks which tend to end up higher in the long term, regardless of speculation. If someone had invested their money into houses, land, or stocks in 1850 or 1919 they would have seen a vastly superior rate of return than from gold.

People who advocate buying gold right now are giving irresponsible advice that if followed will almost certainly lead to people losing money.

Re: Warren Buffett: Why stocks beat gold and bonds

#73

Post by phillmv »

smokeyj wrote: post #64
Cushman wrote: post #41

Imagine if gold were a company. Friend: "Hey man, you gotta get in on this— this stock has gone up 30% in the last year! Nowhere to go but up!" You: "Wow, that's amazing! What does it do?" Friend: "Um... it doesn't corrode?"

Imagine if the USD were a company. Friend: "Hey man, you gotta get in on this— this stock has gone down 30% in the last year! Nowhere to go but down!"

… Which is why Buffet also says he doesn't like currency denominated assets.

Re: Warren Buffett: Why stocks beat gold and bonds

#74

Post by beagle3 »

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…

Except gold and silver have a couple of millenia of history, that shows that unlike fiat money, they retain their value.

(Unfortunately, your friend is likely to lose his pants again -- not because gold is going to lose its value, but because there is no way to invest in gold without fiat and counterparty risk which is equivalent or even worse than the equity investment risks. If you don't believe that, ask any MF Global customer who had money and gold futures worth lots of money where his money is)

Re: Warren Buffett: Why stocks beat gold and bonds

#75

Post by illumin8 »

InclinedPlane wrote: post #42
rubashov wrote: post #23

Earlier quoted context omitted.

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

Look at this graph: http://blog.thomsonreuters.com/wp-content/uploads/2011/04/GL... Is that the sign of an investment that keeps growing in value steadily across the ages or merely the sign of a speculative bubble about to burst? Hint: look at the late 70s as well.

Have you considered that the chart merely shows the value of gold in US dollars, and that it could be, this time, that the US dollar is the speculative bubble that has been bursting for some time now.

Re: Warren Buffett: Why stocks beat gold and bonds

#76

Post by shingen »

brown9-2 wrote: post #66
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). Am I correct in interpreting this to mean that you believe that inflation has been 100% over…

By the 1980 CPI, inflation is running at closer to 9% right now. So yes, I'm saying inflation has been chugging at a brutal pace the past 12 years. When the CPI was that high back then, Volcker had to take extreme measures to tame inflation. When inflation was 3% to 4% in 1970/1971, Nixon installed price and wage controls. Now when it's much higher on our new CPI, we don't even bat an eyelash at the extreme inflation.

You might think, for example, that real estate has gotten cheap? It's up 100% over the last 12 years in real estate disaster zones like Phoenix. How many people have seen their wages climb 100% in the last 12 years? That's pure inflation, as the historical rate of return on real estate is closer to 1% to 2% per year.

You can also blatantly track the huge inflation of the last 12 years in most commodities.

The current Fed CPI, which was altered during the early Clinton years to hide real inflation, says that inflation is around 3%x. It leaves out all sorts of fun inflationary items (because the Fed says they're volatile, har har).

Re: Warren Buffett: Why stocks beat gold and bonds

#77

Post by shahan »

jpdoctor wrote: post #51

The fact that Warren is on the hook for several billion dollars of S&P puts is mentioned nowhere in the article. When O When are reporters going to understand conflict-of-interest?

It's Warren Buffett, man. Perhaps he invests (long-term) in stocks because he believes what he writes, rather than writes what he does because he just happens to be invested in stocks. You really think there should be a disclaimer here?

Re: Warren Buffett: Why stocks beat gold and bonds

#78

Post by illumin8 »

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…

Stock indexes are more like: heads you gain 10% (average year), tails you lose 50% (every 5-10 years).

Re: Warren Buffett: Why stocks beat gold and bonds

#80

Post by reinhardt »

jrockway wrote: post #56
Cushman wrote: post #19

Earlier quoted context omitted.

In any serious failure of government, the value of bullets far outweighs the value of gold.

When the revolution comes, I'm going to hide somewhere and wait for everyone to run out of bullets.

value(canned food) > value(bullets) > value(gold)
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