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http://news.ycombinator.com/item?id=1949158
tl;dr Before IPO Google made several seminars so it's employees can get investment advice on how to invest their future millions. The advice was to invest in index funds.
Asset allocation matters. Investors who took the time to develop a plan, figure out an asset allocation that matches their risk tolerance, and actually rebalanced periodically to adjust their portfolio back to their allocation target, probably did just fine during the so-called lost decade. Tax efficiency matters. A badly designed portfolio may lose 1% a year to taxes. Tax-inefficient investments should be held in ta…
For example, I'm looking at a chart of his "Permanent Portfolio" from 1970 through 1987, which weights four asset classes equally at 25% each: gold, stocks, bonds, and cash. The portfolio has far lower volatility and far lower draw-downs than gold, stocks, or bonds alone. The portfolio also outperforms stocks or bonds alone. It does not outperform gold over this 17 year period, but by 1987 it comes close. It probably overtakes gold alone in subsequent years, since gold vastly underperformed the stock market from 1987 to 2001.
One good aspect of asset allocation is that it keeps on the opposite side of manic up or down trends. This strategy would have you selling gold at $800 in 1980, and buying gold at $250 in 2001. Gold has vastly outperformed the stock market since then.
Similarly, this strategy would have you buying stocks in 1974, when many people thought equities were "dead" and only fools were in the stock market.
You might think these references are a little dated, but again the principle is timeless. Anyone who says "it's different this time" is probably wrong.
Earlier quoted context omitted.
I think you're taking quite an extreme interpretation of Graham's/Buffet's thoughts on index investing. It's a given that, with index investing, your returns will match the market. Index investing isn't aimed at getting higher returns. Rather, Graham actually spends more time discussing and differentiating between different classes of investors. For the "enterprising investor", s/he can afford to spend more time to f…
I did not intend to portray extreme views, and I believe that I've represented their views fairly. Buffett recommends index investing, but also believes that it provides great opportunity for the enterprising investor because of its passivity and ignorance of security values. Graham did indeed differentiate between the "enterprising" and "defensive" investor, but did not recommend an index approach to investing, even…
Asset allocation matters. Investors who took the time to develop a plan, figure out an asset allocation that matches their risk tolerance, and actually rebalanced periodically to adjust their portfolio back to their allocation target, probably did just fine during the so-called lost decade. Tax efficiency matters. A badly designed portfolio may lose 1% a year to taxes. Tax-inefficient investments should be held in ta…
Harry Browne demonstrates the effectiveness of asset allocation and periodic balancing in his book "Why the Best-Laid Investment Plans Usually Go Wrong". It's an old book from 1987, but the principle is timeless. For example, I'm looking at a chart of his "Permanent Portfolio" from 1970 through 1987, which weights four asset classes equally at 25% each: gold, stocks, bonds, and cash. The portfolio has far lower volat…
2b) Tax consequences matter. Take advantage of options to reduce them, for example by fully funding your IRA. Particularly for the young kids here, you should be maxing your IRA every year if you're debt free. (And you should not, not, not tap it when you change jobs, want to fund a startup or wedding, etc.)
Two words: Berkshire Hathaway.
They'd be more useful if placed into a full sentence, for instance "I think you should put all your net wealth into shares of Berkshire Hathaway" or "I think you should try to replicate Berkshire Hathwaway's investment strategy" or "Hey, you should think about buying a little bit of Berkshire Hathaway as part of a diversified portfolio which also includes other asset classes".
Asset allocation matters. Investors who took the time to develop a plan, figure out an asset allocation that matches their risk tolerance, and actually rebalanced periodically to adjust their portfolio back to their allocation target, probably did just fine during the so-called lost decade. Tax efficiency matters. A badly designed portfolio may lose 1% a year to taxes. Tax-inefficient investments should be held in ta…
Harry Browne demonstrates the effectiveness of asset allocation and periodic balancing in his book "Why the Best-Laid Investment Plans Usually Go Wrong". It's an old book from 1987, but the principle is timeless. For example, I'm looking at a chart of his "Permanent Portfolio" from 1970 through 1987, which weights four asset classes equally at 25% each: gold, stocks, bonds, and cash. The portfolio has far lower volat…
Two words: Berkshire Hathaway.
Ten years ago maybe, but since Buffet has promised to give away his money, why should I trust him to handle mine? His is not hungry for it anymore.
That said, I wouldn't touch BRK. Size is the anchor now and there are very limited opportunities for BRK to grow at the same pace they've grown over the last 25 years.
Earlier quoted context omitted.
Ten years ago maybe, but since Buffet has promised to give away his money, why should I trust him to handle mine? His is not hungry for it anymore.
To be fair, I don't think he ever was that hungry for the trappings of wealth. He just wanted to accumulate. Based on my understanding of Buffett, his entire identity is so wrapped up in Berkshire that you have to assume he will be giving it 110% until the day he croaks. That said, I wouldn't touch BRK. Size is the anchor now and there are very limited opportunities for BRK to grow at the same pace they've grown over…
That said, you may be right about the size problem.
Earlier quoted context omitted.
Harry Browne demonstrates the effectiveness of asset allocation and periodic balancing in his book "Why the Best-Laid Investment Plans Usually Go Wrong". It's an old book from 1987, but the principle is timeless. For example, I'm looking at a chart of his "Permanent Portfolio" from 1970 through 1987, which weights four asset classes equally at 25% each: gold, stocks, bonds, and cash. The portfolio has far lower volat…
One obvious asset class that's missing from that allocation is real estate, which (if you bought in a sensible area) has probably easily outperformed all of those since 1974 with the possible exception of gold.
"Real estate isn't an essential investment for a Permanent Portfolio. Real estate offers no profit or protection to a portfolio that can't be achieved more easily with stocks and gold."
He then accepts the reality that many readers have invested or wish to invest in real estate, and goes on to talk about it at length.
Clearly real estate can produce high income and gains for those who have the capital to buy property and the time and money to manage it, but I do see his point.