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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

#151

Post by dwc »

ef4 wrote: post #11

His 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…

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.

This depends on how high you set the bar. If you're trying to be Warren Buffet then buying a broad index obviously won't get you there. With the bar set somewhere in the neighborhood of "I'd like to protect and increase the buying power of my money" then buying something like SPY starts looking a lot better, even with taxes and inflation taken into account.

Re: Warren Buffett: Why stocks beat gold and bonds

#152

Post by onemoreact »

shingen wrote: post #140
herge wrote: post #132

Earlier quoted context omitted.

Right, because the price of gold in US$ has tripled in the last five years not because of speculation but because the dollar is one third as valuable as before. That's why the average US wage and minimum wage has also tripled over the same time period, right? Or have we become less efficient and our hour of labour is "worth" a third less? The price of labor eclipses the price of commodities in most of the economy, wh…

That's exactly right, it's because the dollar is collapsing in real value. I dare you to spec out the price of a basket of 10 to 15 commodities from a decade ago compared to where they're at now.

And I dare you to compare the cost of a big mac from 3 years ago vs today in comparison to gold.

Re: Warren Buffett: Why stocks beat gold and bonds

#153

Post by Steko »

gsmaverick wrote: post #135
InclinedPlane wrote: post #111

Earlier quoted context omitted.

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

Inflation rate doesn't properly reflect the change in the value of the US dollar. A better line would be one adjusted for the growth in money supply.

Inflation is the proper measure. The chart might not say what you want it to but that's not it's fault.

Re: Warren Buffett: Why stocks beat gold and bonds

#156

Post by yannickt »

iy56 wrote: post #104
yannickt wrote: post #97

Earlier quoted context omitted.

The challenge is identifying "someone like him" before the fact . But if you could do that, then you would know why he's been so successful and you'd be able to do it all by yourself. Most funds do not beat the market in the long term (> 10 years) after costs, and for the same asset allocation, someone who just invests in the market (e.g. through low-cost index funds) will do much better than the average professional…

Investing money produces measurable results. It is possibly to verify that someone is a successful investor without knowing why he is successful.

The only thing you can measure is past performance. In investing, past success is not a guarantee of future long term success. Long Term Capital Management had two Nobel laureates among its partners. The fund was extremely successful in its first few years (~40% yearly return with little volatility), but then lost over four billion in just a few months, and eventually closed.

Re: Warren Buffett: Why stocks beat gold and bonds

#157

Post by muraiki »

mikeash wrote: post #10
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.…

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 government doesn't even need to be unstable: https://en.wikipedia.org/wiki/Executive_Order_6102

(Granted, many people simply shipped their gold to another country, but still...)

Re: Warren Buffett: Why stocks beat gold and bonds

#158

Post by Aloisius »

Schultzy wrote: post #146
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…

If you try to value gold objectively (its industrial and possibly jewelry use), its price should be significantly lower than what it is today. I think you might be misunderstanding what gives things value. The $20 bill in my pocket has little objective value by your definition. Sure, I could use it as a building material by papering a small piece of my wall with it or I could make an origami ring out of it, but the o…

Yes you are correct. I use fundamental or intrinsic value in the financial sense. That relies on summing the future income and then discounting it to the present value. As a $20 bill has no future income, it has significantly less value than $20 invested in even a government bond.

Re: Warren Buffett: Why stocks beat gold and bonds

#159

Post by woobar »

shingen wrote: post #140
herge wrote: post #132

Earlier quoted context omitted.

Right, because the price of gold in US$ has tripled in the last five years not because of speculation but because the dollar is one third as valuable as before. That's why the average US wage and minimum wage has also tripled over the same time period, right? Or have we become less efficient and our hour of labour is "worth" a third less? The price of labor eclipses the price of commodities in most of the economy, wh…

That's exactly right, it's because the dollar is collapsing in real value. I dare you to spec out the price of a basket of 10 to 15 commodities from a decade ago compared to where they're at now.

I don't have prices at hand. But a look at my Quicken database revealed that my total food-related expenses (groceries, school lunches, dining out, etc) were:

2001 $12K (family of three)

2011 $17K (family of five)

I was surprised when I compared these two numbers first time. Gut feeling was that food prices went up a lot.

Housing costs:

2001 $10800 (aparment, rent)

2011 $14800 (house, PITI)

Edit: formatting

Re: Warren Buffett: Why stocks beat gold and bonds

#160

Post by chernevik »

Disagreeing with Buffett is an express ticket to Looking Stupid. But.

As Buffett notes, gold demand is an index of fear. And yes, generally returns on gold reflect the extent of fear. Were this the only return case, the whole thing would be subject to tautological collapse.

But it's not the only return case. Sometimes fears come true. Governments debase or revalue currencies, regimes collapse entirely, equity assets are appropriated. (Anyone care to guess what happens if foreign investor interests in the Chinese stock market collide seriously with vital state interests?) In these edge cases, gold is one of the few assets that carries value across the transition.

To which comes the reply, if the U.S. government falls you'll have worse problems than asset preservation. Certainly true. But when those problems get resolved, asset preservation will work its way back up the priorities.

It strikes me as lousy investment vehicle -- but I think it's a mistake to dismiss its political and economic importance entirely because it doesn't make sense in our particular context. The whole point of its importance is its commentary on that context.

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