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

Re: Warren Buffett: Why stocks beat gold and bonds

#191

Post by reinhardt » Thu, Feb 09, 2012, 10:57 PM UTC

bira wrote: post #121

reinhardt wrote: post #80

Earlier quoted context omitted.

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

Gold is an universal store of wealth. Canned food and bullets not so much. It's a different kind of value.

Gold is a universal make-believe store of wealth: it is precious because "we" (i.e. most people) agree to consider it as precious. The fact that it's rare, cannot be manufactured and doesn't corrode over time are nice to have properties but are neither necessary nor sufficient conditions of value.

The context of this subthread is SHTF situations, where all that matters is inherent value determined by the laws of nature. What good is your gold if nobody wants to take it for even a tuna sandwich or if you have a loaded gun pointed at you?

Re: Warren Buffett: Why stocks beat gold and bonds

#192

Post by Yen » Thu, Feb 09, 2012, 11:01 PM UTC

woobar wrote: post #159

shingen wrote: post #140

Earlier quoted context omitted.

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

doesn't the size of the family almost completely account for the difference in price?

say you do a simple, stupid analysis - 12k / 3 = $4k/person/year, which is greater than 17k/5 =$3.4k/person/year

of course, that's not entirely fair, since children eat less than adults, right?

if you ballpark daily caloric intake, the family of 3 eats (2500+2000+1000)365 calories a year, for 4.4 cents/Cal.

The family of 5 maybe eats (2200 + 1800 + 1800+1600+1000) 365, for 5.5 cents a Cal (I'm assuming the aging adults moderate their diet for their decreased metabolism)

yes, that's a 20% increase, but given other factors (possibly more dining out, errors in the ballparking, etc.), it's really not a huge jump in food prices.

Re: Warren Buffett: Why stocks beat gold and bonds

#193

Post by bunderbunder » Thu, Feb 09, 2012, 11:04 PM UTC

smokeyj wrote: post #186

Natsu wrote: post #119

Earlier quoted context omitted.

"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?

I wonder what 170,000 tons of paper can produce. Does paper respond to Buffet's fondling?

Heat, which would be a valuable resource in the kind of scenario where it stops being valued as currency.

Dog food would also be quite useful. And of course the wet kind would be better served warm, which would add to the desirability of paper.

You could probably find uses for gold. But you'd have to waste a lot of paper to melt it down, so the most common ones would be things like 'doorstop' and 'blunt weapon'.

Re: Warren Buffett: Why stocks beat gold and bonds

#194

Post by jonnathanson » Thu, Feb 09, 2012, 11:42 PM UTC

paganel wrote: post #161

jonnathanson wrote: post #103

Earlier quoted context omitted.

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…

> Hedging against the apocalypse is a silly reason to own "gold." In the last 100 years alone there were at least 2 such "apocalyptic" events: the Russian revolution and the communists' grab of power in China. Granted, there were a couple of lucky stock-owners that didn't see their holdings going to zero ( http://en.wikipedia.org/wiki/American_International_Group#Hi... ), but generally speaking it would have been muc…

But my point is that most people don't actually own physical gold (hence my use of the air quotes around the word).

Re: Warren Buffett: Why stocks beat gold and bonds

#195

Post by caycep » Fri, Feb 10, 2012, 1:54 AM UTC

Natsu wrote: post #119

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?

This is a quote from the Q&A at 2011's yearly Berkshire Hathaway annual investor's meeting. Definitely worth going if you can spare the time (and are a BRKA or BRKB investor...)

Re: Warren Buffett: Why stocks beat gold and bonds

#196

Post by kyrsey » Fri, Feb 10, 2012, 8:39 AM UTC

onemoreact wrote: post #152

shingen wrote: post #140

Earlier quoted context omitted.

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.

McDonald's won't take my gold flakes, and anyway I don't think a 3-year-old big mac will be edible...

Re: Warren Buffett: Why stocks beat gold and bonds

#197

Post by kyrsey » Fri, Feb 10, 2012, 8:49 AM UTC

smokeyj wrote: post #186

Natsu wrote: post #119

Earlier quoted context omitted.

"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?

I wonder what 170,000 tons of paper can produce. Does paper respond to Buffet's fondling?

No one proposes to use sheets of paper as a currency, let alone as an investment.

Treasury bonds have exchange value, not because they are paper, but because people will accept them, for the right they reliably represent; because the government is good for that debt. Gold, too, has exchange value NOT because of its chemical composition - only because people will accept it, and they accept it because they believe they will be able to trade it in the same way. If it loses half its value due to a bubble popping or the global supply increasing over time, it's no better than a currency which lost half its value due to government policy. There is always something around of value, and if the post-apocalyptic situation is bad enough then gold will be worth only a little at best, if you can even find someone selling whatever you need.

Land is an example of something which can produce, as is stock in a company which sells things that are always in demand. This was the contrast being made against the block of gold, not paper

Re: Warren Buffett: Why stocks beat gold and bonds

#198

Post by kyrsey » Fri, Feb 10, 2012, 8:59 AM UTC

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…

What makes gold "real" value and other exchangeable items not "real" value?

You had better stick to talking about exchange value, because once you get into nebulous discussion of "real" value it becomes immediately relevant that gold is nonproductive at best and prone to fluctuations and bubbles in reality.

If you define the discussion of value as being limited to immediate short term exchange, then it's no surprise that you end up concluding that the only things of "real" value are whatever gives you liquidity. That is a part of the story, after all Berkshire keeps $20-$30 billion liquid as a matter of policy.

But that doesn't tell you anything about future returns or opportunity costs, and it is not the whole story. The idea that gold's value is "real" because others think it is real (or better, have long thought that it is real) is just as viciously circular as saying that currency's value is real because others believe it is real.

Re: Warren Buffett: Why stocks beat gold and bonds

#199

Post by kyrsey » Fri, Feb 10, 2012, 9:19 AM UTC

javert wrote: post #180

lmkg wrote: post #178

SO I was recently trying to figure out why Bitcoins could be considered a rational investment (sorry to bring up that dead horse again =P). Much to my surprise, I realized that reasons for investing in them are much the same as the reasons for investing in gold. * Relatively stable, predictable supply over time * Not controlled or regulated by any institution or central authority (government or otherwise) * Value det…

In order to fully attain this status, they merely need everyone to agree on their status as such, which is circular but nonetheless appears to have happened. I'm not so sure that works. With gold, it was not the case that everyone just "agreed to agree" that it was valuable. Rather, gold was valued independently of its "investment value" due to its use as a status symbol/decoration/jewelry. Likewise, because of that,…

Glass also has decorative value. There's no easily imaginable risk of everyone suddenly deciding that it has NO decorative value.

So what? That's not the relevant risk. The relevant risk is that whatever you are using as a currency will DECREASE in value. Say, from the level of something highly valued as a medium of exchange accepted everywhere, to the level of a mere decoration. Or from a peak value where you bought in big during a speculative bubble, to a lower value where (yes) it's still worth something, but worth less than if you had kept it in treasury bonds or an index fund or a farm.

Re: Warren Buffett: Why stocks beat gold and bonds

#200

Post by kyrsey » Fri, Feb 10, 2012, 9:23 AM UTC

reedlaw wrote: post #116

hodder wrote: post #59

Earlier quoted context omitted.

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.

The value of anything can be propped up by speculation, what varies is the value which can be maintained without speculation (e.g., in cases where the bubble bursts).

I think this is the use of discriminating among (A) resources reasonably expected to decline in value, (B) resources expected to 'hold value' modulo speculation, (C) resources expected to have ongoing returns with or without speculation.