Author Topic: Buffett's Annual Letter  (Read 22995 times)

Guizmo

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Buffett's Annual Letter
« on: February 24, 2014, 08:29:27 AM »
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/?iid=Lead

Lots o' good nuggets here:

"Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits -- and, worse yet, important to consider acting upon their comments."

"A "flash crash" or some other extreme market fluctuation can't hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy."

" In the 20th century, the Dow Jones industrial index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st century will witness further gains, almost certain to be substantial. The goal of the nonprofessional should not be to pick winners -- neither he nor his "helpers" can do that -- but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."
« Last Edit: February 24, 2014, 12:13:10 PM by arebelspy »

AdrianC

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Buffett's annual letter excerpt
« Reply #1 on: February 24, 2014, 08:30:13 AM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.

arebelspy

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Re: Buffet's Annual Letter
« Reply #2 on: February 24, 2014, 08:40:31 AM »
[Moderator Note: Merged duplicate threads.]
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Re: Buffett's annual letter excerpt
« Reply #3 on: February 24, 2014, 11:11:57 AM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.

Even better, buy BRKB

matchewed

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Re: Buffett's annual letter excerpt
« Reply #4 on: February 24, 2014, 11:14:39 AM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.

Even better, buy BRKB

Kinda misses Buffet's point. Individual stocks have risks that a non-professional investor either doesn't understand or doesn't have the information to know of the risks. Even BRKB has that risk. The best advice is for low cost index funds in your chosen AA.

Will

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Re: Buffet's Annual Letter
« Reply #5 on: February 24, 2014, 11:31:30 AM »
[Moderator Note: Merged duplicate threads.]

Can the moderator please correct the spelling of Warren Buffett's name please?

AdrianC

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Re: Buffett's annual letter excerpt
« Reply #6 on: February 24, 2014, 12:06:52 PM »
Even better, buy BRKB

I'm with you, but it's interesting that on Buffett's passing his wife gets cash which he recommends is invested 10% cash, 90% S&P500 index.

He'd never recommend that anyone buy BRK, and she'll have plenty to live on, I'm sure.

IMHO, right now BRK is a better buy than an index fund. It's not always. We have both.

Vjklander

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Re: Buffett's annual letter excerpt
« Reply #7 on: February 24, 2014, 12:25:13 PM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.

Even better, buy BRKB

Kinda misses Buffet's point. Individual stocks have risks that a non-professional investor either doesn't understand or doesn't have the information to know of the risks. Even BRKB has that risk. The best advice is for low cost index funds in your chosen AA.

Not really.  Berkshire owns numerous top-notch companies outright. That is much more than their stock investments. How many of your funds can claim that?

matchewed

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Re: Buffett's Annual Letter
« Reply #8 on: February 24, 2014, 01:31:25 PM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/

Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.

Even better, buy BRKB

Kinda misses Buffet's point. Individual stocks have risks that a non-professional investor either doesn't understand or doesn't have the information to know of the risks. Even BRKB has that risk. The best advice is for low cost index funds in your chosen AA.

Not really.  Berkshire owns numerous top-notch companies outright. That is much more than their stock investments. How many of your funds can claim that?

That doesn't change the risks associated with a company. A conglomerate has as many risks as an individual company, perhaps more. Just because my index fund cannot claim outright ownership in companies doesn't mean I don't reap the benefits of the gains of those companies. I understand it looks rosy right now. But for my 60+ year time frame for investing and wealth growth I'll look to index funds over BRKB any day. Less long term risk in the index fund.

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Re: Buffett's Annual Letter
« Reply #9 on: February 24, 2014, 02:01:35 PM »
Unless you're going to buy Berkshire outright, it hardly matters that they own several companies outright. You personally will still own a very small percentage.

After that, all you'd really be bragging about is having high exposure to a few particular companies which you think will do well, which sounds more like individual stock-picking than diversification to me.

You think they will do well, and so does everyone else - therefore this fact is already represented in their share prices today. To beat the market, you need to know something that everyone else doesn't know, or won't correctly act on.

aclarridge

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Re: Buffett's Annual Letter
« Reply #10 on: February 24, 2014, 02:14:58 PM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.

The only thing that scares me about index investing is that as a long term strategy, I can't see a scenario where it ends up doing badly. And if it seems too good to be true...

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Re: Buffett's Annual Letter
« Reply #11 on: February 24, 2014, 04:11:44 PM »
I read it earlier today; great article!

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's. (VFINX)) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers."

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Re: Buffett's Annual Letter
« Reply #12 on: February 24, 2014, 11:12:56 PM »
Absolutely great article. A question I"ve had for Berkshire stock, how much of it do you think would change after Mr. Buffet's demise? I hate thinking in that terms, but aside from him and Mr. Munger, how reliable are Berkshire managers?

RaveOregon

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Re: Buffett's Annual Letter
« Reply #13 on: February 25, 2014, 06:28:09 AM »
Absolutely great article. A question I"ve had for Berkshire stock, how much of it do you think would change after Mr. Buffet's demise? I hate thinking in that terms, but aside from him and Mr. Munger, how reliable are Berkshire managers?


From Buffett's 2012 letter to shareholders:
http://www.berkshirehathaway.com/letters/2012ltr.pdf

"Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of
integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We
hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in
the dust as well


Consequently, we have increased the funds managed by each to almost $5 billion (some of this emanating
from the pension funds of our subsidiaries). Todd and Ted are young and will be around to manage
Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they
take over."

They sound like they are going to be quite reliable. They have Buffett's confidence at least.

warfreak2

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Re: Buffett's Annual Letter
« Reply #14 on: February 25, 2014, 09:18:25 AM »
A question I"ve had for Berkshire stock, how much of it do you think would change after Mr. Buffet's demise?
Not very much, unless it was unexpected. Anything predictable is already represented in the stock price today.

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Re: Buffett's Annual Letter
« Reply #15 on: February 25, 2014, 09:36:16 AM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.


He didn't.  He recommended it for people who aren't knowledgeable investors. 
I looked into buying stock in his company a few years back and it took a sizeable chunk of change, something the average non-knowledgeable investor probably doesn't have to invest in the first place...

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Re: Buffett's Annual Letter
« Reply #16 on: February 25, 2014, 09:52:14 AM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.


He didn't.  He recommended it for people who aren't knowledgeable investors. 
I looked into buying stock in his company a few years back and it took a sizeable chunk of change, something the average non-knowledgeable investor probably doesn't have to invest in the first place...

Ultimately, I think he's confident that BRK valuation will reflect it's earning power over the long haul. He doesn't need to be a cheerleader for the stock in order to generate short term interest. This is also evidenced by the fact that he doesn't splip the stock to encourage short term trading and small time speculators.

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Re: Buffett's Annual Letter
« Reply #17 on: February 25, 2014, 10:22:30 AM »
I'm amazed that Buffett recommends index investing over investment in his own company.

Actually, he's recommending both simultaneously (especially since he particularly recommends the S&P 500 as the index fund you should invest in). About ~1.2% of every share of VFINX is a stake in Berkshire Hathaway; it's one of the largest components of any S&P 500 index fund. So I own about $5000 worth of BRK.B without even trying to.

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Re: Buffett's Annual Letter
« Reply #18 on: February 25, 2014, 10:23:19 AM »
Exactly ^+1 Kingcoin,  and the chatter alone on anything he writes gets people to look at his holding anyhow. Not to mention he is on Squawk Box and everything else regularly and so many people refer to it.  I think he would lose respect if he was simply a cheerleader of his own Stock/fund with all of his exposure not to mention it just doesn't seem to be what hes a bout.

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Re: Buffett's Annual Letter
« Reply #19 on: February 25, 2014, 10:30:08 AM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.


He didn't.  He recommended it for people who aren't knowledgeable investors. 
I looked into buying stock in his company a few years back and it took a sizeable chunk of change, something the average non-knowledgeable investor probably doesn't have to invest in the first place...

Ultimately, I think he's confident that BRK valuation will reflect it's earning power over the long haul. He doesn't need to be a cheerleader for the stock in order to generate short term interest. This is also evidenced by the fact that he doesn't splip the stock to encourage short term trading and small time speculators.

That was the whole point of creating BRK-B

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Re: Buffett's Annual Letter
« Reply #20 on: February 25, 2014, 10:30:10 AM »
Absolutely great article. A question I"ve had for Berkshire stock, how much of it do you think would change after Mr. Buffet's demise? I hate thinking in that terms, but aside from him and Mr. Munger, how reliable are Berkshire managers?


From Buffett's 2012 letter to shareholders:
http://www.berkshirehathaway.com/letters/2012ltr.pdf

"Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of
integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We
hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in
the dust as well


Consequently, we have increased the funds managed by each to almost $5 billion (some of this emanating
from the pension funds of our subsidiaries). Todd and Ted are young and will be around to manage
Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they
take over."

They sound like they are going to be quite reliable. They have Buffett's confidence at least.

He's also stated in previous letters that his duties as Chairman and chief investor will not be given to the same person when his time comes. His top choice for chairman is not public information (the board of directors knows). However, the smart money is on Ajit Jain, who built the Berkshire Hathaway reinsurance business, and (one could argue) is almost as  responsible for Berkshire's success as Buffett himself. As Buffett tells it in his letters, Jain is cut very much from the same cloth as the big man, so it's possible very little will change. "Corporate culture" is not just a buzz word with those guys.

I've long wondered if Buffett's death might present an amazing buying opportunity for BRK, as people who don't understand the company bail out or short it.

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Re: Buffett's Annual Letter
« Reply #21 on: February 25, 2014, 11:59:43 AM »
That was the whole point of creating BRK-B

The point of creating B shares was to 1) allow gifting without triggering taxes and 2) to stave off competitors who were going to create a trust that sold fractional A shares. Believe me, Buffett has no interest in encouraging retail punting in the stock. B shares have less voting rights, for what it's worth.

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Re: Buffett's Annual Letter
« Reply #22 on: February 25, 2014, 02:29:58 PM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.

The only thing that scares me about index investing is that as a long term strategy, I can't see a scenario where it ends up doing badly. And if it seems too good to be true...

Study history and you'll find plenty of multi-decade periods where stocks did poorly.  We are currently 14 years into one of them.

http://www.businessinsider.com/stocks-for-the-long-run-dow-japan-2012-6

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Re: Buffett's Annual Letter
« Reply #23 on: February 25, 2014, 03:21:42 PM »
Study history and you'll find plenty of multi-decade periods where stocks did poorly.  We are currently 14 years into one of them.

http://www.businessinsider.com/stocks-for-the-long-run-dow-japan-2012-6

What I don't like is how the quoted article bases his arguments on real stock prices neglecting dividends. A sideways market for inflation-adjusted stock prices delivers returns below historical norms, but investors still get the dividend.

Japan is a somewhat special case - with peak P/E ratios about 100, the usually quoted reference point ("still x% below its peak value in 1989") is hopelessly warped. I am not sure that the bursting Japanese asset bubble tells us anything about the risks of buying stocks at a P/E of 20 or less.

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Re: Buffett's Annual Letter
« Reply #24 on: February 25, 2014, 07:38:42 PM »
The Dow is absolutely moronic. IBM influences the Dow more than any other company for no good financial reason and the author abuses that to sell his moronic ideas to unsuspecting readers. Pull that graph up with a real cap-weighted broad index and the "lost 1.4 decades" disappear.

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Re: Buffett's Annual Letter
« Reply #25 on: February 25, 2014, 10:56:39 PM »
Nice article by Buffett:
http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/
Condensed version: Non-professional investors are better off in a low-cost S&P500 index fund.
Even better, buy BRKB
Kinda misses Buffet's point. Individual stocks have risks that a non-professional investor either doesn't understand or doesn't have the information to know of the risks. Even BRKB has that risk. The best advice is for low cost index funds in your chosen AA.
Not really.  Berkshire owns numerous top-notch companies outright. That is much more than their stock investments. How many of your funds can claim that?
We've been watching Berkshire Hathaway since the late 1990s and we've been owners since 2001.  Buying BRK shares is still single-stock risk, no matter how good people think the "top-notch" companies may be.  Tyco and Enron were also made up of underlying companies, too. 

Jeff Matthews' "Pilgrimage" had a number of interesting observations about Berkshire's sacred cows (like Nebraska Furniture Mart and See's Candies).  Alice Schroeder used to track some horrifying stories of NetJets on her blog.  Kirby vacuum cleaners are facing persistent lawsuits about their sales approach.  MidAmerican Energy is killing salmon all over the Pacific Northwest.

Buying BRK shares is just part of a diversified portfolio.  Of course I may just be talking down my book so that I can buy cheap shares from the rest of you.

Absolutely great article. A question I"ve had for Berkshire stock, how much of it do you think would change after Mr. Buffet's demise? I hate thinking in that terms, but aside from him and Mr. Munger, how reliable are Berkshire managers?
There'll be a short, sharp drop... unless Caribbean cruises, alcohol, and prostitutes are involved, in which case it'll be a longer, sharper drop.  After a few months the share price will start to recover.  If/when the board declares a dividend, the share price will soar.

Confusion is tied to BRK's announcement that they'll buy back their shares at 110% of book value.  (That's roughly $95/share for the "B" shares, about $15-$20 below the usual share price.)  People widely expect that BRK will prop up the price at book value, but that's no guarantee.  Part of me wants to keep selling puts around that $95/share strike so that I'm always ready to scoop up a bargain.

That was the whole point of creating BRK-B
The point of creating B shares was to 1) allow gifting without triggering taxes and 2) to stave off competitors who were going to create a trust that sold fractional A shares. Believe me, Buffett has no interest in encouraging retail punting in the stock. B shares have less voting rights, for what it's worth.
The latest reason for splitting the value of the B shares was to allow exchanging them for shares of BNSF when the purchase was tendered.  Buffett really hates paying with BRK shares, but he really really wanted to own BNSF.

aclarridge

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Re: Buffett's Annual Letter
« Reply #26 on: February 26, 2014, 09:59:01 AM »
I'm amazed that Buffett recommends index investing over investment in his own company. It's telling.

The only thing that scares me about index investing is that as a long term strategy, I can't see a scenario where it ends up doing badly. And if it seems too good to be true...

Study history and you'll find plenty of multi-decade periods where stocks did poorly.  We are currently 14 years into one of them.

http://www.businessinsider.com/stocks-for-the-long-run-dow-japan-2012-6

I consider long term 30 years or more. Also, index investing in general to me means going international. There's not much history of being able to do this at low cost, but if you just look at major markets over the last 100 yrs I don't think it's possible to have done badly following that simple strategy. You can come up with examples where somebody buys their entire portfolio the day before a massive crash, and then the portfolio doesn't recover for 10-20 years. But in all of those cases afaik a more global portfolio would have done fine.

US stocks have done reasonably well in the last 14 years. Plenty of people around here have had their accumulation phase during this time and are now FI in no small part due to pretty good market returns.

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Re: Buffett's Annual Letter
« Reply #27 on: February 26, 2014, 12:00:18 PM »
The Dow is absolutely moronic. IBM influences the Dow more than any other company for no good financial reason and the author abuses that to sell his moronic ideas to unsuspecting readers. Pull that graph up with a real cap-weighted broad index and the "lost 1.4 decades" disappear.

Ah, so when index investing is shown not to work, blame the index?


US stocks have done reasonably well in the last 14 years. Plenty of people around here have had their accumulation phase during this time and are now FI in no small part due to pretty good market returns.

I'm not sure what your basis is for saying that.  The SPY ETF has returned about 3.5% per year over that time, dividends included.  Most people have done well for the past 5 years, but for those not just starting out, a lot of this bull run was recouping prior losses.

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Re: Buffett's Annual Letter
« Reply #28 on: February 26, 2014, 12:08:49 PM »
The Dow is absolutely moronic. IBM influences the Dow more than any other company for no good financial reason and the author abuses that to sell his moronic ideas to unsuspecting readers. Pull that graph up with a real cap-weighted broad index and the "lost 1.4 decades" disappear.

Ah, so when index investing is shown not to work, blame the index?


US stocks have done reasonably well in the last 14 years. Plenty of people around here have had their accumulation phase during this time and are now FI in no small part due to pretty good market returns.

I'm not sure what your basis is for saying that.  The SPY ETF has returned about 3.5% per year over that time, dividends included.  Most people have done well for the past 5 years, but for those not just starting out, a lot of this bull run was recouping prior losses.

Except that they likely would be putting in more now than when they were younger, therefore they probably made more on the last 5 years upside than they did on the previous 5 years.  Even if the results ended up only being +3.5%, they likely ended up ahead of that, no?
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Re: Buffett's Annual Letter
« Reply #29 on: February 26, 2014, 12:13:51 PM »

US stocks have done reasonably well in the last 14 years. Plenty of people around here have had their accumulation phase during this time and are now FI in no small part due to pretty good market returns.

I'm not sure what your basis is for saying that.  The SPY ETF has returned about 3.5% per year over that time, dividends included.  Most people have done well for the past 5 years, but for those not just starting out, a lot of this bull run was recouping prior losses.

Imagine you started investing 14 years ago, reinvesting quarterly and averaging into say a 70/30 stock/bond portfolio. I'm not sure what the return would be but I know it's better than 3.5% annualized. And hell, 3.5% annualized is better than inflation and if that's some kind of worst-case-scenario then that's not bad.

Again, when you pick a point in time right before a big crash, make that your cost basis, and compare returns afterward things aren't going to look as rosy. You have to be extremely unlucky to pick that point in time to invest everything you've got though which is why it's a silly argument to make.

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Re: Buffett's Annual Letter
« Reply #30 on: February 26, 2014, 12:26:28 PM »
The Dow is absolutely moronic. IBM influences the Dow more than any other company for no good financial reason and the author abuses that to sell his moronic ideas to unsuspecting readers. Pull that graph up with a real cap-weighted broad index and the "lost 1.4 decades" disappear.

Ah, so when index investing is shown not to work, blame the index?


Yes, if it is a bad index you do blame it. Because of composition a broader index than 30 companies arbitrarily chosen will perform differently and have risks that are easy to mitigate with a broader more diversified index. Like in any other mutual fund there will be ones that are chosen which will perform well or poorly in a given time frame. That is not the fault of the strategy but the fund. Index fund investing is traditionally advocating a S&P500 or Total Market fund. If someone decides to use a much narrower (read less diversified) fund, it will have more volatility and it will be easier to find these lost periods. As Grant said run the numbers on a broader index such as the total market. Do you see the same issue?

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Re: Buffett's Annual Letter
« Reply #31 on: February 26, 2014, 01:05:15 PM »
Except that they likely would be putting in more now than when they were younger, therefore they probably made more on the last 5 years upside than they did on the previous 5 years.  Even if the results ended up only being +3.5%, they likely ended up ahead of that, no?

I would say it depends on the person and their skill sets.  The past 5 years have shown flat to declining incomes and long stretches of unemployment for many people.  Besides you are talking from your own perspective, the perspective of somebody in the accumulation phase.  What about somebody that achieved FI prior to the collapse?  Your argument doesn't apply to them.


Imagine you started investing 14 years ago, reinvesting quarterly and averaging into say a 70/30 stock/bond portfolio. I'm not sure what the return would be but I know it's better than 3.5% annualized. And hell, 3.5% annualized is better than inflation and if that's some kind of worst-case-scenario then that's not bad.

Again, when you pick a point in time right before a big crash, make that your cost basis, and compare returns afterward things aren't going to look as rosy. You have to be extremely unlucky to pick that point in time to invest everything you've got though which is why it's a silly argument to make.

You're right that adding bonds to the portfolio increases the performance, because bonds outperformed stocks over the past 14 years.  That's not what Buffett recommended though, is it?


Yes, if it is a bad index you do blame it. Because of composition a broader index than 30 companies arbitrarily chosen will perform differently and have risks that are easy to mitigate with a broader more diversified index. Like in any other mutual fund there will be ones that are chosen which will perform well or poorly in a given time frame. That is not the fault of the strategy but the fund. Index fund investing is traditionally advocating a S&P500 or Total Market fund. If someone decides to use a much narrower (read less diversified) fund, it will have more volatility and it will be easier to find these lost periods. As Grant said run the numbers on a broader index such as the total market. Do you see the same issue?

Yeah, so how do you explain why the S&P has more or less tracked the performance of the Dow over each of the periods discussed?  If the author had chosen to use the S&P, the results of the analysis would have been the same.  Same with the Wilshire 5,000 or any other US stock index.  They are all highly correlated.

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Re: Buffett's Annual Letter
« Reply #32 on: February 26, 2014, 01:09:45 PM »
Except that they likely would be putting in more now than when they were younger, therefore they probably made more on the last 5 years upside than they did on the previous 5 years.  Even if the results ended up only being +3.5%, they likely ended up ahead of that, no?

I would say it depends on the person and their skill sets.  The past 5 years have shown flat to declining incomes and long stretches of unemployment for many people.  Besides you are talking from your own perspective, the perspective of somebody in the accumulation phase.  What about somebody that achieved FI prior to the collapse?  Your argument doesn't apply to them.

Okay, so in the accumulation phase seems we're good with the market.  Glad we agree there.

Now.. Have you talked with many people that ER'd around that time?  I have read of many of them.  Most are doing just fine.  See Nord's posts, for example.  Go to the E-R.org forums for hundreds of their stories.

Anecdotes, yes, but I'd wager someone savvy enough with finances to ER would have done fine.  Those that didn't would have kept contributing (hopefully) and caught the massive run up.

Do you have any backups to your claim about people that were FI "before the collapse"?

You're right that adding bonds to the portfolio increases the performance, because bonds outperformed stocks over the past 14 years.  That's not what Buffett recommended though, is it?

Did he recommend one be 100% equities, which is your assumption?  I doubt it.  I don't know that he recommended a certain asset allocation, other than use index funds for the equity portion.

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Poorman

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Re: Buffett's Annual Letter
« Reply #33 on: February 26, 2014, 01:46:19 PM »

Okay, so in the accumulation phase seems we're good with the market.  Glad we agree there.

Now.. Have you talked with many people that ER'd around that time?  I have read of many of them.  Most are doing just fine.  See Nord's posts, for example.  Go to the E-R.org forums for hundreds of their stories.

Anecdotes, yes, but I'd wager someone savvy enough with finances to ER would have done fine.  Those that didn't would have kept contributing (hopefully) and caught the massive run up.

Do you have any backups to your claim about people that were FI "before the collapse"?

You're right that adding bonds to the portfolio increases the performance, because bonds outperformed stocks over the past 14 years.  That's not what Buffett recommended though, is it?

Did he recommend one be 100% equities, which is your assumption?  I doubt it.  I don't know that he recommended a certain asset allocation, other than use index funds for the equity portion.

To answer your first statement, no we don't agree.  Declining income and long stretches of unemployment aren't conducive to making catch-up payments to your retirement account.

Talking to people that ER'd around that time doesn't tell the whole story because of survivorship bias.  You're more likely to hear about the success stories than the failures.  The fact is that anybody invested in stocks in 2008 took a hit, and if they were retired, probably didn't have the ability to "keep contributing".  Nord receives a military pension which lowers his risk immensely (and he deserves it, BTW), but that's not a situation that most early retirees will be in.

I'm not assuming anything about Buffett.  He recommended owning a cross-section of businesses that are bound to do well.  Bonds are debt, not business ownership.





arebelspy

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Re: Buffett's Annual Letter
« Reply #34 on: February 26, 2014, 02:35:13 PM »
I guess I'm missing your point then.

Warren Buffet gives bad advice?
One shouldn't invest in stocks because sometimes the returns are only 3-5%?'
People don't make money in the stock market?
It is impossible to have ER'd in the last decade?

Please explain to me what your point is.

Thanks!  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

AdrianC

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Re: Buffett's Annual Letter
« Reply #35 on: February 26, 2014, 06:45:35 PM »
Confusion is tied to BRK's announcement that they'll buy back their shares at 110% of book value.  (That's roughly $95/share for the "B" shares, about $15-$20 below the usual share price.)  People widely expect that BRK will prop up the price at book value, but that's no guarantee.  Part of me wants to keep selling puts around that $95/share strike so that I'm always ready to scoop up a bargain.

It changed to 120% of book in December 2012.
3rd qtr book was $84.51, so current "buyback" is $101.
We'll find out what year end book was on Saturday. I'm guessing $88, so "buyback" is $105. Trading around $113. Pretty close.
I'm already a bit full with BRK.B, but if it falls to close to 1.2xbook I will buy more.

grantmeaname

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Re: Buffett's Annual Letter
« Reply #36 on: February 26, 2014, 08:40:08 PM »
Yeah, so how do you explain why the S&P has more or less tracked the performance of the Dow over each of the periods discussed?  If the author had chosen to use the S&P, the results of the analysis would have been the same.  Same with the Wilshire 5,000 or any other US stock index.  They are all highly correlated.
As I said, he used the Dow to exaggerate his point and his point is an artifact of the ridiculous benchmark he chose. The fact that it's an index doesn't mean it's representative of passive investing.

beltim

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Re: Buffett's Annual Letter
« Reply #37 on: February 26, 2014, 08:59:21 PM »
Yeah, so how do you explain why the S&P has more or less tracked the performance of the Dow over each of the periods discussed?  If the author had chosen to use the S&P, the results of the analysis would have been the same.  Same with the Wilshire 5,000 or any other US stock index.  They are all highly correlated.
As I said, he used the Dow to exaggerate his point and his point is an artifact of the ridiculous benchmark he chose. The fact that it's an index doesn't mean it's representative of passive investing.

You're still wrong, and you're ignoring the point. Despite all the problems with calculating the Dow, the correlation between it and broader indices (like the S&P 500) is astonishing. The Dow is not essential to any point when the comparison is the S&P.

Your last sentence is true but irrelevant.

matchewed

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Re: Buffett's Annual Letter
« Reply #38 on: February 27, 2014, 05:14:36 AM »
Yeah, so how do you explain why the S&P has more or less tracked the performance of the Dow over each of the periods discussed?  If the author had chosen to use the S&P, the results of the analysis would have been the same.  Same with the Wilshire 5,000 or any other US stock index.  They are all highly correlated.
As I said, he used the Dow to exaggerate his point and his point is an artifact of the ridiculous benchmark he chose. The fact that it's an index doesn't mean it's representative of passive investing.

You're still wrong, and you're ignoring the point. Despite all the problems with calculating the Dow, the correlation between it and broader indices (like the S&P 500) is astonishing. The Dow is not essential to any point when the comparison is the S&P.

Your last sentence is true but irrelevant.

Regardless of all that the article is ridiculous. It's just grasping at straws through what? Pattern recognition of charts? Crystal ball readings? Trying to use an article which amounts to "Here is my prediction of the future" to support an initial assertion that stocks have done poorly over the last 14 years is what is irrelevant. There is currently nothing to support that claim. That article doesn't even make that claim, it makes a prediction from a year and a half ago that has so far proven wrong. Picking one year and trying to say equities don't have a return is too narrow of a criteria to say equities are poor investments or that they don't have returns. If I arbitrarily picked market lows I could say that the market has performed incredibly well. Or I could just link to a bigger study than that terrible fluff piece of an article. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html That article has many more years than one simple 14 year period.

grantmeaname

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Re: Buffett's Annual Letter
« Reply #39 on: February 27, 2014, 05:24:46 AM »
You're still wrong, and you're ignoring the point. Despite all the problems with calculating the Dow, the correlation between it and broader indices (like the S&P 500) is astonishing. The Dow is not essential to any point when the comparison is the S&P.
The correlation between the Dow and the S&P 500 was lowest at the beginning of the author's arbitrary time period. He literally went fishing for something to make his numbers look stronger and found he could replace the S&P 500 with the Dow, which overreacts to tech, and then used the top of the tech bubble as his comparison point. That's shitty, misleading journalism. That's "the point".

aclarridge

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Re: Buffett's Annual Letter
« Reply #40 on: February 27, 2014, 08:00:54 AM »

Imagine you started investing 14 years ago, reinvesting quarterly and averaging into say a 70/30 stock/bond portfolio. I'm not sure what the return would be but I know it's better than 3.5% annualized. And hell, 3.5% annualized is better than inflation and if that's some kind of worst-case-scenario then that's not bad.

Again, when you pick a point in time right before a big crash, make that your cost basis, and compare returns afterward things aren't going to look as rosy. You have to be extremely unlucky to pick that point in time to invest everything you've got though which is why it's a silly argument to make.


You're right that adding bonds to the portfolio increases the performance, because bonds outperformed stocks over the past 14 years.  That's not what Buffett recommended though, is it?

You're right, he didn't. Ignore that part and read the rest of what I wrote.

Nords

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Re: Buffett's Annual Letter
« Reply #41 on: February 27, 2014, 09:37:31 AM »
Confusion is tied to BRK's announcement that they'll buy back their shares at 110% of book value.  (That's roughly $95/share for the "B" shares, about $15-$20 below the usual share price.)  People widely expect that BRK will prop up the price at book value, but that's no guarantee.  Part of me wants to keep selling puts around that $95/share strike so that I'm always ready to scoop up a bargain.

It changed to 120% of book in December 2012.
3rd qtr book was $84.51, so current "buyback" is $101.
We'll find out what year end book was on Saturday. I'm guessing $88, so "buyback" is $105. Trading around $113. Pretty close.
I'm already a bit full with BRK.B, but if it falls to close to 1.2xbook I will buy more.
Do you have a link for that change?  I remember a purchase of a large block of stock back then for close to 120%, but I don't recall that being the new policy. 

beltim

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Re: Buffett's Annual Letter
« Reply #42 on: February 27, 2014, 09:43:22 AM »
Regardless of all that the article is ridiculous. It's just grasping at straws through what? Pattern recognition of charts? Crystal ball readings? Trying to use an article which amounts to "Here is my prediction of the future" to support an initial assertion that stocks have done poorly over the last 14 years is what is irrelevant. There is currently nothing to support that claim. That article doesn't even make that claim, it makes a prediction from a year and a half ago that has so far proven wrong. Picking one year and trying to say equities don't have a return is too narrow of a criteria to say equities are poor investments or that they don't have returns. If I arbitrarily picked market lows I could say that the market has performed incredibly well. Or I could just link to a bigger study than that terrible fluff piece of an article. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html That article has many more years than one simple 14 year period.
Sure.  I never made any claim otherwise, and I agree with you.  I was just saying that despite the Dow's imperfections, it still does its job–providing a measure of the ups or downs of the market.

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Re: Buffett's Annual Letter
« Reply #43 on: February 27, 2014, 09:47:01 AM »
Regardless of all that the article is ridiculous. It's just grasping at straws through what? Pattern recognition of charts? Crystal ball readings? Trying to use an article which amounts to "Here is my prediction of the future" to support an initial assertion that stocks have done poorly over the last 14 years is what is irrelevant. There is currently nothing to support that claim. That article doesn't even make that claim, it makes a prediction from a year and a half ago that has so far proven wrong. Picking one year and trying to say equities don't have a return is too narrow of a criteria to say equities are poor investments or that they don't have returns. If I arbitrarily picked market lows I could say that the market has performed incredibly well. Or I could just link to a bigger study than that terrible fluff piece of an article. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html That article has many more years than one simple 14 year period.
Sure.  I never made any claim otherwise, and I agree with you.  I was just saying that despite the Dow's imperfections, it still does its job–providing a measure of the ups or downs of the market.

But more to Grant's point it doesn't when tech stocks go out of wack. Why would I use such a narrow criteria of stocks to measure the performance of a whole market?

beltim

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Re: Buffett's Annual Letter
« Reply #44 on: February 27, 2014, 09:53:09 AM »
Regardless of all that the article is ridiculous. It's just grasping at straws through what? Pattern recognition of charts? Crystal ball readings? Trying to use an article which amounts to "Here is my prediction of the future" to support an initial assertion that stocks have done poorly over the last 14 years is what is irrelevant. There is currently nothing to support that claim. That article doesn't even make that claim, it makes a prediction from a year and a half ago that has so far proven wrong. Picking one year and trying to say equities don't have a return is too narrow of a criteria to say equities are poor investments or that they don't have returns. If I arbitrarily picked market lows I could say that the market has performed incredibly well. Or I could just link to a bigger study than that terrible fluff piece of an article. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html That article has many more years than one simple 14 year period.
Sure.  I never made any claim otherwise, and I agree with you.  I was just saying that despite the Dow's imperfections, it still does its job–providing a measure of the ups or downs of the market.

But more to Grant's point it doesn't when tech stocks go out of wack. Why would I use such a narrow criteria of stocks to measure the performance of a whole market?

I don't know where Grant thinks the author is misusing the Dow - the only chart of the Dow is the one from the Great Depression, when the S&P 500 didn't exist yet.  What am I missing?  Where does the author cherry pick which index he uses in order to further his point?

matchewed

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Re: Buffett's Annual Letter
« Reply #45 on: February 27, 2014, 10:04:38 AM »
Regardless of all that the article is ridiculous. It's just grasping at straws through what? Pattern recognition of charts? Crystal ball readings? Trying to use an article which amounts to "Here is my prediction of the future" to support an initial assertion that stocks have done poorly over the last 14 years is what is irrelevant. There is currently nothing to support that claim. That article doesn't even make that claim, it makes a prediction from a year and a half ago that has so far proven wrong. Picking one year and trying to say equities don't have a return is too narrow of a criteria to say equities are poor investments or that they don't have returns. If I arbitrarily picked market lows I could say that the market has performed incredibly well. Or I could just link to a bigger study than that terrible fluff piece of an article. http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html That article has many more years than one simple 14 year period.
Sure.  I never made any claim otherwise, and I agree with you.  I was just saying that despite the Dow's imperfections, it still does its job–providing a measure of the ups or downs of the market.

But more to Grant's point it doesn't when tech stocks go out of wack. Why would I use such a narrow criteria of stocks to measure the performance of a whole market?

I don't know where Grant thinks the author is misusing the Dow - the only chart of the Dow is the one from the Great Depression, when the S&P 500 didn't exist yet.  What am I missing?  Where does the author cherry pick which index he uses in order to further his point?
http://www.mrmoneymustache.com/forum/investor-alley/buffet's-annual-letter/msg229295/#msg229295

It's in the link in the specific message above. The one claiming Dow chart analysis to Japan's ongoing recession.

beltim

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Re: Buffett's Annual Letter
« Reply #46 on: February 27, 2014, 10:13:19 AM »
I don't know where Grant thinks the author is misusing the Dow - the only chart of the Dow is the one from the Great Depression, when the S&P 500 didn't exist yet.  What am I missing?  Where does the author cherry pick which index he uses in order to further his point?
http://www.mrmoneymustache.com/forum/investor-alley/buffet's-annual-letter/msg229295/#msg229295

It's in the link in the specific message above. The one claiming Dow chart analysis to Japan's ongoing recession.

Right, but where?  Here are the places in the article where the Dow is mentioned:

1) the title
2) the discussion of the peak in 2000, and what the Dow would be if it followed the trajectory of the Nikkei (note that in the next paragraph, the same discussion is repeated with the S&P)
3) a plot where the Dow in the great depression is compared to the Nikkei in 1989 and the S&P starting in 2000

So which of these is egregious?

Again, I'm saying nothing about the overall quality of the article.  I'm just saying that the correlation between the S&P 500 and the Dow make them quite comparable.

matchewed

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Re: Buffett's Annual Letter
« Reply #47 on: February 27, 2014, 10:38:30 AM »
I don't know where Grant thinks the author is misusing the Dow - the only chart of the Dow is the one from the Great Depression, when the S&P 500 didn't exist yet.  What am I missing?  Where does the author cherry pick which index he uses in order to further his point?
http://www.mrmoneymustache.com/forum/investor-alley/buffet's-annual-letter/msg229295/#msg229295

It's in the link in the specific message above. The one claiming Dow chart analysis to Japan's ongoing recession.

Right, but where?  Here are the places in the article where the Dow is mentioned:

1) the title
2) the discussion of the peak in 2000, and what the Dow would be if it followed the trajectory of the Nikkei (note that in the next paragraph, the same discussion is repeated with the S&P)
3) a plot where the Dow in the great depression is compared to the Nikkei in 1989 and the S&P starting in 2000

So which of these is egregious?

Again, I'm saying nothing about the overall quality of the article.  I'm just saying that the correlation between the S&P 500 and the Dow make them quite comparable.

Grant already pointed it out.

You're still wrong, and you're ignoring the point. Despite all the problems with calculating the Dow, the correlation between it and broader indices (like the S&P 500) is astonishing. The Dow is not essential to any point when the comparison is the S&P.
The correlation between the Dow and the S&P 500 was lowest at the beginning of the author's arbitrary time period. He literally went fishing for something to make his numbers look stronger and found he could replace the S&P 500 with the Dow, which overreacts to tech, and then used the top of the tech bubble as his comparison point. That's shitty, misleading journalism. That's "the point".

Regardless of that you keep missing Grant's point that it is a shitty misleading article and harping on one specific section of what is broadly a trash article to defend a position.

beltim

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Re: Buffett's Annual Letter
« Reply #48 on: February 27, 2014, 10:45:44 AM »
You keep arguing with points I'm not making, and you're not addressing the ones I am.  If you think I'm defending the article as a whole you should reread my posts.

matchewed

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Re: Buffett's Annual Letter
« Reply #49 on: February 27, 2014, 11:20:04 AM »
You keep arguing with points I'm not making, and you're not addressing the ones I am.  If you think I'm defending the article as a whole you should reread my posts.

I've reread your posts. If what your posts amount to is nit picking someone else's argument but not actually taking a position in the larger context of the discussion (Buffet's annual letter and his recommendation on the future performance of various markets vs. BRK) then I'm not sure what value we're having in this discussion. Thanks for the conversation though.