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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

#201

Post by brazzy »

nl wrote: post #184
arjunnarayan wrote: post #69

Earlier quoted context omitted.

If we've come to the point where you're fleeing the country from Nazis with only what you can carry in your hand, the only thing that's going to be sustainable is investment in _yourself_ through massive education. That way you're up and working and earning from the moment you're safely away.

Since we are talking Sci-Fi scenarios... It makes a lot of sense to try and carry as much value with you as possible. Conditions during the course of your escape are likely to be difficult and the ability to pay for thing (=bribe your way out of trouble) is likely to be much more useful than knowledge of advanced mathematics or Python minutea. (Of course, the most useful way to carry value in an escape scenario is ge…

Gemstones are not a good value store at all, since there is no liquid market for them and the first-sale price is artificially inflated through marketing.

Buy a diamond today and sell it tomorrow, and you'll make a loss of 30% or more.

Re: Warren Buffett: Why stocks beat gold and bonds

#202

Post by brazzy »

Nitpick: there's one clearly false statement Buffet makes:

The second major category of investments involves assets that will never produce anything, [...] Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

Tulips actually produce something - more tulips. It's actually quite possible that the bulb of a rare and especially pretty tulip variety could be a sound investment for someone intending to grow tulips. And that's how the Dutch tulip mania started out (though it then did proceed to truly bizarre excesses).

Re: Warren Buffett: Why stocks beat gold and bonds

#203

Post by JoyxBen »

He says: 'Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle ... 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.'

But how many companies have ever survived for centuries?

Yes, centuries from now there still will be companies producing goods and services, but they are highly unlikely to be the same companies you put your money in.

E.g:

'The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.'

'Professor Foster estimates that by 2020, more than three-quarters of the S&P 500 will be companies that we have not heard of yet.'

http://www.bbc.co.uk/news/business-16611040

Re: Warren Buffett: Why stocks beat gold and bonds

#204

Post by nl »

brazzy wrote: post #201
nl wrote: post #184

Earlier quoted context omitted.

Since we are talking Sci-Fi scenarios... It makes a lot of sense to try and carry as much value with you as possible. Conditions during the course of your escape are likely to be difficult and the ability to pay for thing (=bribe your way out of trouble) is likely to be much more useful than knowledge of advanced mathematics or Python minutea. (Of course, the most useful way to carry value in an escape scenario is ge…

Gemstones are not a good value store at all, since there is no liquid market for them and the first-sale price is artificially inflated through marketing. Buy a diamond today and sell it tomorrow, and you'll make a loss of 30% or more.

In the "government collapse and you need to run from nazis" scenario, if you somehow manage to only lose 30% of your value you are doing well.

I'd note that Wikipedia says:

A high quality diamond weighing as little as 2 or 3 grams could be worth as much as 100 kilos of gold. This extremely condensed value and portability does bestow diamonds as a form of emergency funding. People and populations displaced by war or extreme upheaval have utilised this portable asset successfully.[1]

[1] http://en.wikipedia.org/wiki/Diamonds_as_an_investment (yes, it says citation needed, but nevertheless it did work in WW2.)

Re: Warren Buffett: Why stocks beat gold and bonds

#205

Post by iy56 »

yannickt wrote: post #156
iy56 wrote: post #104

Earlier quoted context omitted.

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.

Of course you don't get a guarantee. People who are looking for one are stupid. You get a betting advantage - as long as you accept that it is possible to be a "good" investor, in the sense of making lots of money. If you continue to bet on people who made successful investments in the past, you might get burned by the people who merely got lucky, and you will make money when the person really was a smart investor. Past performance thing is not a convincing argument against this. A valid argument would be that the ratio of those groups is not favorable enough to overcome the management fee.

Re: Warren Buffett: Why stocks beat gold and bonds

#206

Post by iy56 »

makomk wrote: post #173
iy56 wrote: post #104

Earlier quoted context omitted.

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

It is completely useless to verify that someone's investment choices were successful in the past without knowing why. For example, there are enough hedge funds out there that there will always be a few that outperform the market just through sheer luck, and there's no way tell the difference between a fund which has succeeded in the past through sheer luck and one that's actually well-managed. In fact, I seem to reca…

It's not completely useful, nor is it completely useless. As long as it is possible to be a "good" investor, in the sense of making lots of money, it can still be somewhat useful. If you continue to bet on people who made successful investments in the past, you might get burned by the people who merely got lucky, and you will make money when the person really was a smart investor. Past performance thing is not a convincing argument against this. A valid argument would be that the ratio of those groups is not favorable enough to overcome the management fee. I'd be interested to see if the Buffet bet you mention is related to this, but my work filter blocks that site.

Re: Warren Buffett: Why stocks beat gold and bonds

#207

Post by yannickt »

iy56 wrote: post #205
yannickt wrote: post #156

Earlier quoted context omitted.

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.

Of course you don't get a guarantee. People who are looking for one are stupid. You get a betting advantage - as long as you accept that it is possible to be a "good" investor, in the sense of making lots of money. If you continue to bet on people who made successful investments in the past, you might get burned by the people who merely got lucky, and you will make money when the person really was a smart investor. P…

"You get a betting advantage."

Actually you don't. The investment industry understands very well that people will naively invest based on superior historical performance, so they use that history to sell investment products. One example of a popular rating system is the Morningstar Rating which rates a fund, stock, or manager based on performance over e.g. 3, 5, 10 years. But that history is public information that most investors use already, so it cannot convey a betting advantage.

"you will make money when the person really was a smart investor"

Statistically speaking, you will run out of money long before you find this hypothetical smart investor. Also, note that the smart investor has not necessarily been "successful" in the past. He could very well have been accumulating shares or fund units while prices were falling, anticipating that they will rise in the future.

Point is, unless you know why that investor is smart, you are essentially leaving it all to chance.

Re: Warren Buffett: Why stocks beat gold and bonds

#208

Post by william42 »

smokeyj wrote: post #185
william42 wrote: post #168

Earlier quoted context omitted.

Hint: the value of USD isn't as an investment. In fact, if the value of USD goes up, that makes it less useful, because the point of having money is to spend it. For example, one of the many reasons of the utter trainwreck of Bitcoin is the fact that more people were holding it as speculation than actually using it to purchase anything. And it's only 3% in the last year if you aren't trying to compare it to something…

Currency markets exist. USD is an asset that can be traded. Holding USD is an investment -- although, not necessarily voluntary. I don't know why you're comparing gold to a baby p2p app with microscopic trade volume. That just seems odd. Because they both experience deflation? In that case, all inflation goes the way of Zimbabwe and even more worthless than gold.

Currency markets exist, but most currency trading is a lot more short-term.

Holding USD is rarely an investment. You put money in your checking account(as opposed to a savings account/CD, which is an investment in the bank) because you expect to spend it(you know, what money is for?) soon. Only banks hold large amounts of USD and they almost immediately loan it out.

And you're right, it's unfair to compare gold to Bitcoin. There are people actually using Bitcoin as a currency, whereas gold is almost exclusively exchanged for actual currencies, which are then exchanged for goods and services.

And the failure of the Zim dollar is the reason they recently returned to the gold standard. Oh wait, no, they switched to USD.

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