Warren Buffett: Why stocks beat gold and bonds • Hacker News Board

Re: Warren Buffett: Why stocks beat gold and bonds

#111

Post by InclinedPlane » Thu, Feb 09, 2012, 7:51 PM UTC

illumin8 wrote: post #75

InclinedPlane wrote: post #42

Earlier quoted context omitted.

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.

It has two lines, one is for prices adjusted for inflation (the blue line), the other (the yellow line) is with absolute prices.

Re: Warren Buffett: Why stocks beat gold and bonds

#112

Post by shingen » Thu, Feb 09, 2012, 7:51 PM UTC

Aloisius wrote: post #102

Warren Buffet is a value investor. He buys stocks that he sees as fundamentally undervalued during a bear market and sells them when they are overpriced later. If you try to value gold objectively (its industrial and possibly jewelry use), its price should be significantly lower than what it is today. Speculation and paranoia have driven its price to amazing heights. A value investor can't touch gold with a 10 foot p…

Gold is priced in dollars. If the dollar loses real value, gold goes up. It's the same reason oil is $100, its baseline price is getting set ever higher, because it's priced in dollars. Price oil in silver or gold and you'll see that oil hasn't gone up in price, the dollar has gone down.

It's not paranoia or speculation primarily driving the price increase, but the objective destruction of value represented in what a dollar can buy today versus, say, 12 years ago.

Re: Warren Buffett: Why stocks beat gold and bonds

#113

Post by Aloisius » Thu, Feb 09, 2012, 7:52 PM UTC

nonsequ wrote: post #94

I don't think that Buffett is saying that stocks, at any given point in time, will deliver you better returns over a given time period than gold or bonds. He quite clearly notes that there are times when bonds are beaten up and they'll offer a great return. Buffett, being a virtuoso, variously reaps returns from derivative contracts, insuring sweepstakes prizes, and solar farms. He once bought a boatload of silver an…

As the money supply increases, all currency is devalued and everything that's denominated purely in currency loses value as well.

This is a gross oversimplification. The monetary supply can increase without inflationary effects as long as there is a corresponding increase in the production of value in an economy.

Re: Warren Buffett: Why stocks beat gold and bonds

#114

Post by zecho » Thu, Feb 09, 2012, 7:54 PM UTC

Schultzy wrote: post #100

Mr. Buffett, like a lot of people, mischaracterizes gold as an investment. It is not. Gold is a store of wealth, not a tool realizing future gains (although that may happen). It is disingenuous to compare gold to stocks, or even to farmland as Buffett does. When you buy land, it doesn't miraculously produce crops (wealth) for you, you must input labor and resources (money) first. I know this is nothing new, but inves…

The labor part is his whole point. Gold has little to no utility ("...some industrial and decorative utility"), but land can be used to build more wealth ("A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops").

He absolutely prefers actual production over mere investment in trends. "More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date." This whole philosophy is at the heart of nearly all of his letters to investors and other writings.

Re: Warren Buffett: Why stocks beat gold and bonds

#115

Post by parfe » Thu, Feb 09, 2012, 7:59 PM UTC

If you buy 16 ounces of gold then you have a pile of metal. 5, 10, 20 or 50 years from now it'll still be a one pound pile of metal. Bonds essentially offer the same deal, only you trade a pile of money now for a slightly larger pile of money in the future.

Investing in stocks however buys a piece of a growing entity. You buy stock now and the company buys a tractor, a truck, a robotic assembly line, researches some new polymer, hires staff, invests in its own growth and actually produces goods. As time goes on the company is always trading in current dollars.

Of course there is risk, but If I buy gold now I'm only ever going to own that much gold in the future and the price is entirely based on some other gold-buyer willing to buy a hunk of metal to sit on himself.

Buffet says it better right in the article though which I think people here failed to address. "Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk."

Re: Warren Buffett: Why stocks beat gold and bonds

#116

Post by reedlaw » Thu, Feb 09, 2012, 8:00 PM UTC

hodder wrote: post #59

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?

Do you honestly believe that Warren is trying to deceive you into investing in productive assets rather than a shiny metal because he wants to manipulate the market?

I believe that his speculation argument against gold holds for the stock market as well. Investors create feedback loops when they buy stocks that then creates even more demand. Buffet believes in the S&P and so he will naturally encourage others to do so.

Re: Warren Buffett: Why stocks beat gold and bonds

#117

Post by klochner » Thu, Feb 09, 2012, 8:01 PM UTC

jonnathanson wrote: post #103

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.…

If this is an argument for gold, then it's important to note that most gold "owners" don't actually own gold. They own paper. Or, at best, they own shares in funds that must buy and sell their gold on fixed timetables (debatably erasing a lot of the real gains that would be made by holding actual metal). But they're pretty far removed from the physical good -- and, if the shit truly hit the fan, they'd be just as SOL…

I'm in complete agreement that holding something like GLD is only valuable as a hedge against market volatility.

As for owning gold rather than "gold", I find appeal in being able to put $30k in my pocket in the event that credit cards or ATMs are temporarily out of service, which could happen well short of an "apocalypse."

Re: Warren Buffett: Why stocks beat gold and bonds

#118

Post by nerfhammer » Thu, Feb 09, 2012, 8:04 PM UTC

beagle3 wrote: post #65

gjm11 wrote: post #35

Earlier quoted context omitted.

> 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.)

.... only to devalue the dollar by 50% or so as soon as it was believed there was not a lot of gold left in private hands. While "stealing the gold" is not technically correct, eliminating 50% of the value of everyone's saving IS, and the confiscation of gold was done to eliminate the best (and popular) store of value. Of course, it was all legal -- but when the government makes the laws, that statement is completely…

To be more precise, FDR increased the price at which the government would buy gold from foreign buyers. The devaluation occurs in terms of foreign currency exchange. I don't think it's quite correct to put a 1:1 correspondence to that and "eliminating 50% of the value of everyone's savings". Maybe eliminated 50% the value of everyone's savings in Francs. Domestic purchasing power would be negatively affected for foreign goods, in theory it would create income in terms of increased exports.

Re: Warren Buffett: Why stocks beat gold and bonds

#119

Post by Natsu » Thu, Feb 09, 2012, 8:05 PM UTC

Aloisius wrote: post #102

Warren Buffet is a value investor. He buys stocks that he sees as fundamentally undervalued during a bear market and sells them when they are overpriced later. If you try to value gold objectively (its industrial and possibly jewelry use), its price should be significantly lower than what it is today. Speculation and paranoia have driven its price to amazing heights. A value investor can't touch gold with a 10 foot p…

"The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond." -- Warren Buffet

He doesn't mince words, does he?

Re: Warren Buffett: Why stocks beat gold and bonds

#120

Post by Aloisius » Thu, Feb 09, 2012, 8:07 PM UTC

shingen wrote: post #112

Aloisius wrote: post #102

Warren Buffet is a value investor. He buys stocks that he sees as fundamentally undervalued during a bear market and sells them when they are overpriced later. If you try to value gold objectively (its industrial and possibly jewelry use), its price should be significantly lower than what it is today. Speculation and paranoia have driven its price to amazing heights. A value investor can't touch gold with a 10 foot p…

Gold is priced in dollars. If the dollar loses real value, gold goes up. It's the same reason oil is $100, its baseline price is getting set ever higher, because it's priced in dollars. Price oil in silver or gold and you'll see that oil hasn't gone up in price, the dollar has gone down. It's not paranoia or speculation primarily driving the price increase, but the objective destruction of value represented in what a…

I know you're heavily invested in gold, but what you say is simply not true. The Gold-Oil ratio has fluctuated from upwards of 36:1 to 1:8 over the past 40 years.

Further, if it were true then in 2009 when oil plunged from $140 to $50 a barrel, the value of the dollar should have shot up significantly. When gold dropped 20% last year, there wasn't a corresponding increase in the purchasing power of my dollar.

You only have to look as far as the sleazy companies selling gold to old people on tv and charging 20-30% markups to know that speculation is driving this market.