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Maybe Warren Buffett Is Warning Us About Something

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Re: Maybe Warren Buffett Is Warning Us About Something

#81

Post by vonmoltke »

MrRadar wrote: post #74
ravenstine wrote: post #56

Earlier quoted context omitted.

I'll tell you something that nobody wants to admit to: Nobody really knows how money works. The average 401k holder has one because they don't have a good idea of how money works or what they should do with it. If they really understood their 401k, they'd know that they're probably getting ripped off in fees over their lifetime. If economists and financial analysts completely understood money, they wouldn't be in suc…

To address your points: * Yes, 401k plans usually have high fees, however the tax advantage they provide should more than offset those fees except for the very worst plans. And there are exceptions too: some 401k plans offered by very large companies actually have lower fees than popular low-fee IRA providers. * When you say "get your money out of your 401k" are you referring to moving it to a low-cost IRA or cashing…

> Yes, 401k plans usually have high fees

I haven't seen these "high fees" in any of the five 401k plans across 4 providers that I have had since I started my career 17 years ago.

Re: Maybe Warren Buffett Is Warning Us About Something

#82

Post by jbob2000 »

duxup wrote: post #29

I always got the impression that if Warren wanted to say something, he would. As for his cash on hand that could be relative to any number of things.

Warren knows that his statements are enough to move markets, so even if he wanted to say something, I think he'd be cautious of how it was said. There's something called the "Warren Buffet" effect where, when he announces a new purchase or trade, much of the market follows him and proves him right.

He invests in candy? Everyone invests in candy! Oh look, candy stocks went up, it must be a good investment!

Re: Maybe Warren Buffett Is Warning Us About Something

#83

Post by jadams5 »

ravenstine wrote: post #56
digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

I'll tell you something that nobody wants to admit to: Nobody really knows how money works. The average 401k holder has one because they don't have a good idea of how money works or what they should do with it. If they really understood their 401k, they'd know that they're probably getting ripped off in fees over their lifetime. If economists and financial analysts completely understood money, they wouldn't be in suc…

A friend of mine that's self made and worth about $40m strongly advised me to cash out my 401k. His reasoning just boiled down to who has your best interest at heart, you or some random broker in New York? If you think you can do a better job of putting your money to work, then you should. To be clear, he wasn't talking about buying mutual funds.

My counterpoint is that my wife would kill me if I cashed out my 401k.

Re: Maybe Warren Buffett Is Warning Us About Something

#84

Post by MrRadar »

vonmoltke wrote: post #81
MrRadar wrote: post #74

Earlier quoted context omitted.

To address your points: * Yes, 401k plans usually have high fees, however the tax advantage they provide should more than offset those fees except for the very worst plans. And there are exceptions too: some 401k plans offered by very large companies actually have lower fees than popular low-fee IRA providers. * When you say "get your money out of your 401k" are you referring to moving it to a low-cost IRA or cashing…

> Yes, 401k plans usually have high fees I haven't seen these "high fees" in any of the five 401k plans across 4 providers that I have had since I started my career 17 years ago.

They're often buried in the "expense ratio" of the funds offered. My company's 401k plan has exactly 3 funds with an expense ratio lower than 0.50%, all of them US domestic index funds. All of my bond and international options have ERs over 1.00% which is unacceptably high (I have most of my holdings of those asset classes in my other retirement accounts).

Re: Maybe Warren Buffett Is Warning Us About Something

#85

Post by wUabkSG6L5Bfa5 »

jpmattia wrote: post #69
wUabkSG6L5Bfa5 wrote: post #55

Anybody else notice that, by the article's own plot, one could have said the same thing at almost any point between 1975 and 2000?

Once you include the data from Buffet's earlier career, total-market-cap to GDP makes more sense. For example: https://static.seekingalpha.com/uploads/2010/7/23/98115-1279... Edit: If it were up to me, I might work in monetary supply somehow too (The gold standard ended in 1972 or so). But maybe there's a reason they call him the Oracle of Omaha, and nobody calls me the Oracle of Santa Monica.

That's interesting, there's that plot that floats around of the labor share of GDP growth diverging from productivity coinciding with the end of Bretton Woods, which is striking to look at, and I have no idea how to reason about conditions before compared with conditions after.

Re: Maybe Warren Buffett Is Warning Us About Something

#86

Post by derekp7 »

lbotos wrote: post #20
digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

Money is time, bottled. Stocks/Bonds are money converted into "abstract human output". You are taking a bet that the group of humans that work at the companies that you've invested in will continue to become more advanced and efficient as to "generate value". The stock market is "sentiment". It is collective group think as to what those companies are up to. This is why you see people say "don't touch it". If you don'…

Regarding sentiment, and stock valuation, this is the way I look at it, which to me makes sense (although it doesn't account for irrationality in the market).

Let's say you have $100.00, and the market figures that you need to make a return of 4% per year. If you find a stock that gives dividends of $4.00 per year, that stock will then be worth $100.00. This is assuming that there is a really strong trust in this company, that it won't go out of business, won't grow or shrink in market share.

Now let's add onto this that based on what the company is doing, and an analysis of their competition, and their ability (track record) of execution, that there is a really good chance that next year they will be able to make enough money to return $8.00 dividends per year. Well, that means that next year the stock will be worth $200.00 per share. And if it is going to be worth $200.00 per share next year, well this year most people will probably be willing to pay about $192 per share (that gives a 4% return on investment just in the stock price).

You can extend this line of reasoning to factor in forecasted growth for a number of years into the future. Which is how you get stocks that currently only return a small fraction of a percent of their stock price in dividends (i.e., a $100.00 stock may pay 4 cents dividends, instead of $4.00, since market sentiment thinks the company will grow a lot in the future).

So based on this, I would like to pick stocks that don't have a lot of growth forecasted, but do pay good dividends. Especially stocks that are in a market where they are protected from competition, or otherwise have a strong likelihood of not going out of business but provide the same thing they've always done, without growth but with good dividends.

Re: Maybe Warren Buffett Is Warning Us About Something

#87

Post by ericd »

mhb wrote: post #18
digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

I recommend reading about the Permanent Portfolio: https://www.investopedia.com/terms/p/permanent-portfolio.asp The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury…

portfoliocharts.com is a nice way to explore the Permanent Portfolio and other asset allocations.

Re: Maybe Warren Buffett Is Warning Us About Something

#88

Post by ericd »

digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

First, make sure you’re not 100% equity. You clearly don’t have the stomach for what that would do in a downturn. 60-40 equity-bond is an old standby for a conservative portfolio (I don’t recommend that allocation, though). Then, head over to portfoliocharts.com and play with some of the portfolios and asset allocations to get a sense of how they change historical results. For a conservative portfolio, I like the All Seasons/All Weather, and the Golden Butterfly is an interesting modification of the Permanent Portfolio another poster mentioned. But don’t just blindly follow them, use them as a jumping off point to learn more about the asset classes. Bogleheads.org is a nice forum for learning more about index investing. Good luck, and happy to expand on anything.

Re: Maybe Warren Buffett Is Warning Us About Something

#89

Post by seanmcdirmid »

wbl wrote: post #77
seanmcdirmid wrote: post #63

Earlier quoted context omitted.

There have been prolonged stagnations in the market. It took a couple of decades to recover from the Great Depression, and the if you invested in the 60s you might not be doing so hot by the 80s. The market isn’t a sure thing even in the long term, it’s just fairly reliable.

That's true but I'm assuming he continues to work and put in money.

Those events had long periods of stagnate market performance. So they might not lose as much as a full crash, but they might not beat inflation either. Anyways, nothing like that has happened in our lifetime, but it did happen in our parents’ and grand parents’.

Re: Maybe Warren Buffett Is Warning Us About Something

#90

Post by ericd »

derekp7 wrote: post #86
lbotos wrote: post #20

Earlier quoted context omitted.

Money is time, bottled. Stocks/Bonds are money converted into "abstract human output". You are taking a bet that the group of humans that work at the companies that you've invested in will continue to become more advanced and efficient as to "generate value". The stock market is "sentiment". It is collective group think as to what those companies are up to. This is why you see people say "don't touch it". If you don'…

Regarding sentiment, and stock valuation, this is the way I look at it, which to me makes sense (although it doesn't account for irrationality in the market). Let's say you have $100.00, and the market figures that you need to make a return of 4% per year. If you find a stock that gives dividends of $4.00 per year, that stock will then be worth $100.00. This is assuming that there is a really strong trust in this com…

What? The value of the stock isn’t based on the dividend yield. Dividends are just some of the money of the company being paid out, the value of the company decreases by that amount. The company can declare literally any amount they want to pay out at any time, and it will be the same company either way, with the same underlying value.
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