Buffett is great at picking stocks. The problem with his statement is that he is a professional stock investor but we mere mortals are not. We have our busy lives other than watching the market. For us, the correct strategy is to do balanced portfolio with 50/50 :: stock/bond, or some other ratio.
Warren Buffett: Why stocks beat gold and bonds
81–90 of 208 posts
Re: Warren Buffett: Why stocks beat gold and bonds
#82He 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.…
An unstable government could just as easily seize your gold. What investor cares about millennia? Centuries is already too much, unless you're vastly more concerned about your great great great grandchildren than most people. 100 years is probably the absolute largest possible upper limit for a real investor to care about, and typically it's much less still.
The changes that accrue over millenia all happen in some 100 year stretch.
My point is that looking at the last 100 years, by definition, will overlook times of revolution and change that certainly have happened and will likely continue to happen.
Re: Warren Buffett: Why stocks beat gold and bonds
#83Earlier quoted context omitted.
The problem is you could have actually owned gold for 90 years. Average Joe could have bought gold and held it. You could not have owned the Dow index for 90 years and then left that to your children or grandchildren. Would you like to still be holding Polaroid or Kodak? Or perhaps just bought and held the classic Dow index perpetual GM? You would have gotten wiped out in the Dow shuffling. The Dow gets to drop somet…
The Dow doesn't get to drop GM after it goes bankrupt and then not count its losses. The decline of GM hurt the Dow index just as much as it would have hurt anyone else that bought and sold GM stock when the Dow index added/dropped it. It also represents an average of the market, so the fact that it was hard to mirror it exactly is not particularly relevant. Mirroring it approximately, or buying any other large baske…
The Dow gets to replace GM with another growth vehicle of the modern era. While you take a real beating on the shares, the Dow simply swaps in a new stock (typically one with brighter prospects that can recharge the lost value in the Dow).
You can't swap your dead GM shares for the shares in, say, John Deere when it's added to the index. Your money is gone.
Re: Warren Buffett: Why stocks beat gold and bonds
#84Earlier quoted context omitted.
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 v…
You don't have to be lucky with gold.
You could have bought in roughly 88 of the last 90 years and been perfectly well protected over time from the loss of value in the dollar.
Re: Warren Buffett: Why stocks beat gold and bonds
#85He 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.…
The benefits of diversification -- higher return and lower risk -- is a better reason to invest in gold, even if it was true that gold holds its value for millenia, which probably isn't true.
The article is about "why stocks beat gold and bonds" not "why you should own only stocks and never own any gold or bonds".
Re: Warren Buffett: Why stocks beat gold and bonds
#86Buffet: "A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be." Buffet implicitly rejects global warming here, specifically the latest projections on drought: http://earlywarn.blogspot.com/2012/01/another-terrifying-dro... and others.
Global warming is a red herring here. No matter how hard food production gets, it will remain a value-creating activity as long as there are people (if you don't believe me, then stop eating).
Re: Warren Buffett: Why stocks beat gold and bonds
#87His basic point is almost a tautology. Yes, it's great to own productive assets. The real trick is predicting which ones will really stay productive over the long term. Just buying a broad index is often not a winning strategy when you factor in the taxes, inflation, and survivor bias. Certainly Buffet hasn't just bought a broad index -- he makes highly targeted investments. And he glosses over a basic point that I'v…
An asset like gold behaves differently under bubble conditions than an asset like a tech stock, tulip, or house. The production of those things is price elastic, and rising prices cause rising production that ultimately crashes the bubble.
The number of new home sales at the top of the bubble was about 1.4 million/year vs. existing housing stock of over 70 million. That's less than a 2% increase per year, not counting the thousands of home that are demolished each year. Vast new production isn't required for a bubble.
Re: Warren Buffett: Why stocks beat gold and bonds
#88Earlier quoted context omitted.
> 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…
> in an inflationary environment, stocks get murdered in real terms.
is there any evidence to back this up? is a logical reason why this would be true? i certainly can't think of any
> Gold does not go bankrupt, and it will not go to zero
yes, in this respect, stocks are riskier than gold. if minimizing investment risk is what you want, maybe you should buy gold, or maybe TIPS. however, most people also care about returns.
> There is a huge time management cost to stocks, most people simply do not have the time
this is an argument for ETFs, not an argument for gold
Re: Warren Buffett: Why stocks beat gold and bonds
#89Buffet: "A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be." Buffet implicitly rejects global warming here, specifically the latest projections on drought: http://earlywarn.blogspot.com/2012/01/another-terrifying-dro... and others.
So you believe global warming is going to end life as we know it. How does that change your investment strategy?
Re: Warren Buffett: Why stocks beat gold and bonds
#90Warren Buffet once wrote about gold... It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
Gold has utility: it easily forms a plating on other metals, and conducts electricity even when continuously exposed to air. This is not true of many other metals, hence the popularity of gold-plated electronic interconnects.
This is exactly why I hate it so much when people use gold as an investment instrument. Gold would be useful, except its price is high and its supply is low, because people purchase it with the sole intent of not doing anything with it.