Imagine if gold were a company.
Friend: "Hey man, you gotta get in on this— this stock has gone up 30% in the last year! Nowhere to go but up!"
You: "Wow, that's amazing! What does it do?"
Friend: "Um... it doesn't corrode?"
Warren Buffett: Why stocks beat gold and bonds
41–50 of 208 posts
Re: Warren Buffett: Why stocks beat gold and bonds
#42In the 90s everyone rushed the IT shares and then the dotcom bubble burst. In the first decade of our new millennium, real estate and all sorts of weird financial products somehow building on real estate were THE best way to invest money because nothing can happen, you have a house standing right there, right?? Then that bubble burst. Now, you'd think people would have learned by now but no... sure as hell now everyo…
> everyone rushes Who is rushing to buy gold? I'd be surprised if more than 1% of households have meaningful gold exposure.
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.
Re: Warren Buffett: Why stocks beat gold and bonds
#43He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…
>Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock
$1 in gold 90 years ago: $87 today (by your number anyway)
$1 in a basket of stocks that were traded to match the DOW starting 90 years ago: $174 today (from the article's numbers)
Keep in mind this includes the recent 5 year period where gold has shot up and stocks have performed miserably. If we picked different dates, gold would be even further behind.
Re: Warren Buffett: Why stocks beat gold and bonds
#44Man, you'll never be able to convince gold bugs it's a bad idea.
Shit's just too shiny.
Re: Warren Buffett: Why stocks beat gold and bonds
#45He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…
Gold per ounce
1968 $39.31 2012 $1,750.00 (current price give or take)
http://www.nma.org/pdf/gold/his_gold_prices.pdf
Berkshire Hathaway one share
1968 $36.00 2012 $118,000.00 (current price give or take)
http://allfinancialmatters.com/2008/04/02/a-look-at-berkshir...
Which would you rather invest in?
Re: Warren Buffett: Why stocks beat gold and bonds
#46Earlier quoted context omitted.
Unfortunately it is worth noting that FDR instigated the greatest private wealth seizure in the history of the planet when he stole all of America's privately held gold with force. If you've got a government that is willing to plunder like that, there's no great way to keep your wealth safe except to get yourself and your wealth out of the country.
> 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.)
If someone raped you and then paid you the then-prevailing rate for a whore, does that make it not rape?
What makes an exchange stealing is the involuntary aspect.
Re: Warren Buffett: Why stocks beat gold and bonds
#47He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…
So what is your investment recommendation then? Avoid the market and invest in Gold?
Not exactly. If you're asking as a skilled money manager or investor, I'll give you X advice. If you're asking what I think the average Joe should do (someone with limited time and skill when it comes to money management), I'll give you Z advice. A lot of it depends on how hard you're willing to work to protect and grow your wealth.
If the market is near 13k like it is today, with corporate profit margins at all time highs (cyclically impossible that they'll stay up there), I'd say you should be out of the market. Corporations are accumulating debt at the fastest pace in history (which is one of the reasons they're also hoarding cash, as an offset). When rates spike higher as they eventually must, those companies will get demolished. Far better to wait for the next plunge and be opportunistic, than to hope for a few more points on top of this already huge several year run. Buffett's mantra works very well in that case: be greedy when others are fearful, and fearful when others are greedy.
Buy gold on big drops, like when it fell from $1900x to $1530x recently; but never chase it when it runs. Keep it a modest part of your portfolio (10% to 25% depending on your particularly preferences). It's not a growth vehicle, it's a wealth protection device.
Corporate debt is a great place to get good yield right now, but again you have to know what you're buying.
It's perfectly fine to take an annual hit on inflation against liquid dollars (granted that's under, say, 10%); better to have opportunity cash available. Typically people miss big opportunities because of a lack of cash. Really big opportunities are not that rare, they come around every 3 to 5 years, and the returns you can make off of them are extraordinary. You buy the Dow at 7,000 when everybody else is writhing in pain from the ride down from 14k.
Own commodities when they're occasionally cheap. For example, when potash crashed during the global implosion a few years ago, you could have purchased stocks like POT for 80% off. When oil was $10 or $12 circa the late 1990s, the common 'wisdom' was that oil was dead, a terrible investment, and so on. In reality, cheap energy is almost never a terrible long term invest. The human desire / need for cheap energy will continue to be infinite, which ensures that prices will swing up at some point (even if it takes several years).
Right now, I'd tell most people to look around themselves and invest there. Get a strategically better education perhaps; or find a good business to purchase or invest into. Something you can directly apply your sweat equity to with multiplication potential. Shield your wealth until you find the right opportunities; people seem to often undervalue patience. You don't need lots of homeruns, you need very few.
In this environment, it's all about having liquidity to be opportunistic. The volatility in the global economy is almost guaranteed to produce wild swings over time. When people panic, be there with your cash.
Re: Warren Buffett: Why stocks beat gold and bonds
#48He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…
You talk like the price of gold has never gone down or been stagnant for decades at a time. How much of that 87 fold is due to the last decade?
Re: Warren Buffett: Why stocks beat gold and bonds
#49Warren Buffet once wrote about gold...
It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
Re: Warren Buffett: Why stocks beat gold and bonds
#50He's wrong. Stocks do not beat gold once inflation outpaces the rate of average market returns, which is exactly where we're at now. Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock, Apple at the absolute bottom, or buy Dell the day it IPO'd or other similar freak scenarios, and then hold all the way through, and then sell at the absolut…
> Gold is up 87 fold over 90 years or so
Inflation adjusted, its closer to being up 3 fold:
http://inflationdata.com/inflation/images/charts/Gold/Gold_i...
Meanwhile, inflation adjusted, the S&P500 up more maybe 5 or 8 fold:
http://www.tradersnarrative.com/inflation-adjusted-chart-of-...
>> On a long term duration, it becomes increasingly difficult to survive even modest inflation and market changes
if you look at the gold price chart above, it's pretty clear that holding gold is not exactly smooth sailing either.
> With gold, you merely need to buy and hold - IF you believe the fiat currency will continue to depreciate due to 'printing'.
this is actually also true of stocks. stocks are a real asset in that they are claims on things that aren't directly tied to the money supply. if the fed prints more dollars, dollars are less valuable, but IBM's ability to make money also goes up by the same amount.
also, fundamentally, you're missing buffet's argument:
"this type of investment [(gold)] requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce [(unlike stocks)] -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future."