Buffet says no to bonds - recommends equities and cash

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Buffett Says No to Corp Bonds

Postby William Million » Mon May 06, 2013 8:07 am

http://www.bloomberg.com/news/2013-05-0 ... cmpid=yhoo

Not sure where he'd recommend putting fixed income. Certainly 1%, 5-year Apple notes seem downright silly when an FDIC-insured 5-year CD reaches 1.7%.
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Buffet says no to bonds - recommends equities and cash

Postby Tigermoose » Mon May 06, 2013 9:14 am

Bonds are a "terrible investment" right now

http://finance.yahoo.com/video/buffett- ... 00291.html


I particularly liked what he says about chasing yield. He says you should make the most intelligent decision available and ignore striving for yield. In my terms, you should always make decisions on what is rather than what was, will, or should be.
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Re: Buffet says no to bonds - recommends equities and cash

Postby richard » Mon May 06, 2013 9:33 am

Berkshire has over $30 billion in Fixed maturity securities (and billions more in cash and equity securities). $30 billion seems a large amount in a 'terrible investment'
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Re: Buffet says no to bonds - recommends equities and cash

Postby Calm Man » Mon May 06, 2013 12:04 pm

[Rude comments removed by admin LadyGeek]
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Re: Buffett Says No to Corp Bonds

Postby Leesbro63 » Mon May 06, 2013 12:22 pm

The subject suggests that Buffett is panning corporate bonds relative to other bonds. The fact is that Buffett is negative on ALL bonds. So the "corporate versus not-corporate" bonds isn't the main issue here.
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Re: Buffet says no to bonds - recommends equities and cash

Postby Call_Me_Op » Mon May 06, 2013 1:05 pm

Calm Man wrote:[Rude comments removed by admin LadyGeek]


I disagree. He knows exactly what he's doing. I agree wholeheartedly with him on this topic and I am invested accordingly.
Best regards, -Op

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Re: Buffet says no to bonds - recommends equities and cash

Postby 401k Educator » Mon May 06, 2013 1:24 pm

Even at his age I think he's still of sound mind and a worthwhile resource.
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Re: Buffet says no to bonds - recommends equities and cash

Postby LadyGeek » Mon May 06, 2013 4:38 pm

FYI - We had 2 concurrent threads, albeit with different news sources:

-Bloomberg: Buffett Skips Apple Bonds, Says Not at Those Yields
Video interview on Yahoo Finance: Buffett: Bonds Are 'Terrible Investment' Now

It's the same discussion, so I merged the threads.

Update: I found a 3rd thread.
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Re: Buffet says no to bonds - recommends equities and cash

Postby Levett » Mon May 06, 2013 5:15 pm

Mr. Leesboro says "Huh," and I says how does one pass muster with insurance commissioners using equities with all those insurance subsidiaries?

http://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway

http://www.brkdirect.com/spia/ezquote.asp

http://www.brkdirect.com/message.htm

See also Richard's excellent comment.

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Re: Buffet says no to bonds - recommends equities and cash

Postby scone » Mon May 06, 2013 5:39 pm

Levett wrote:Mr. Leesboro says "Huh," and I says how does one pass muster with insurance commissioners using equities with all those insurance subsidiaries?

snip

I wonder how all this will eventually affect Stable Value funds, especially if interest rates start to rise. I mean, the guarantee is given by what is effectively an "insurance function" of a financial company, which itself has a lot of investment in stocks. There's a certain circularity there that makes me uneasy, but I don't know enough about how the system works to articulate my dis-ease effectively. Maybe I'm just worrying needlessly.
"Sometimes you eat the bear and sometimes the bear eats you." -- Preacher Roe
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Re: Buffet says no to bonds - recommends equities and cash

Postby Qtman » Mon May 06, 2013 6:16 pm

I believe it was Grocho Marks, who when told that government bonds paid low rates and therefore were not good investments, said relative to low rates, "not if you have enough of them".

Yes rates are low, yes Buffett is a successful investor, but everyone's situation is unique.

I struggle with Mr. Buffett's philosophy on many issues. He has said for years that he is against his children getting his wealth, but has set all three of them up with billion dollar "foundations" to run.
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Re: Buffet says no to bonds - recommends equities and cash

Postby pennstater2005 » Mon May 06, 2013 7:06 pm

Does anyone on here plan to change anything because of this? I for one do not.
To hell with circumstances; I create opportunities. - Bruce Lee
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Re: Buffet says no to bonds - recommends equities and cash

Postby Levett » Mon May 06, 2013 8:00 pm

Pennstater:

No change whatever here.

Berkshire-Hathaway is the equivalent of an endowment.

I'm an individual.

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Re: Buffet says no to bonds - recommends equities and cash

Postby Spades » Mon May 06, 2013 8:14 pm

Qtman wrote:I believe it was Grocho Marks, who when told that government bonds paid low rates and therefore were not good investments, said relative to low rates, "not if you have enough of them".

Yes rates are low, yes Buffett is a successful investor, but everyone's situation is unique.

I struggle with Mr. Buffett's philosophy on many issues. He has said for years that he is against his children getting his wealth, but has set all three of them up with billion dollar "foundations" to run.


Agreed, I don't believe everything Mr. Buffet says. He does things he says not to do often. Watch his actions, don't listen to his words.

:sharebeer
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Re: Buffet says no to bonds - recommends equities and cash

Postby jimmy futura » Mon May 06, 2013 8:20 pm

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Re: Buffet says no to bonds - recommends equities and cash

Postby Spades » Tue May 07, 2013 8:22 am

If people actually made money listening to Buffet, could Buffet sue Altrucher and make millions for libel for the book he published?

:sharebeer
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Re: Buffet says no to bonds - recommends equities and cash

Postby lazyday » Tue May 07, 2013 8:26 am

For an individual investor with under a few million, Apple bonds seem to make little sense, since it should be better to use CDs and/or cash acounts spread over banks and credit unions with good rates.

Institutions with too much money to invest don't have that choice. Treasury bills and notes pay next to nothing.

Apple has much more cash than they are raising in bonds. They are doing this for tax reasons, which we probably can't discuss here. But because they have so much cash, over $110B when I last looked, these bonds might be considered very safe for an institutional investor with limited choices available, for part of their portfolio.

As an individual, I don't own any fixed income of any duration that can't be redeemed with any penalty longer than 90 days interest. And those are I Bonds. (That's not advice. :) )
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Re: Buffet says no to bonds - recommends equities and cash

Postby MathWizard » Tue May 07, 2013 2:38 pm

Qtman wrote:I believe it was Grocho Marks, who when told that government bonds paid low rates and therefore were not good investments, said relative to low rates, "not if you have enough of them".

Yes rates are low, yes Buffett is a successful investor, but everyone's situation is unique.

I struggle with Mr. Buffett's philosophy on many issues. He has said for years that he is against his children getting his wealth, but has set all three of them up with billion dollar "foundations" to run.


He always planned on his wife Susan living longer and running a single foundation after his demise.
Giving the majority to the Gates Foundation and having his kids handle smaller foundations became
his backup plan. (Source his biography Snowball).

Given his propensity for junk food, his assumption was probably not unreasonable.

Of course, his attitudes have changed over his lifetime.

He is a rather unique case, so I generally just agree with his advice about passive investing with minimal
fees being best for the vast majority of people, which is the same advice Ben Graham gave a long time ago.
Jack Bogle and Vanguard have made that much easier than in Graham's day.
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Here we go again - warning about bonds

Postby AAA » Tue May 07, 2013 8:15 pm

[Thread merged into this one. See my post below. --admin LadyGeek]

http://www.usatoday.com/story/money/business/2013/05/06/warren-buffett-federal-reserve-stocks-bonds-heinz/2138403/

From the article: "Buffett said on CNBC financial news network Monday that bonds are a "terrible" investment at the moment and that owners of long-term bonds may see big losses when interest rates eventually rise."

Some market timing advice from the sage.
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Re: Here we go again - warning about bonds

Postby Calhoon » Tue May 07, 2013 8:46 pm

Hasn't Buffet been saying this for a couple years now? This is by no means a new sentiment.
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Re: Here we go again - warning about bonds

Postby Calm Man » Tue May 07, 2013 8:57 pm

Although I still have cash slowly being fed in, I maintain my 50/50 allocation. I actually am "happy" when somebody like Warren who has a lot of money to invest and a lot of ears following him advises against an asset class as it may indicate that there are more potential buyers down the road or at least that the strong sellers have already sold. Somebody other than the fed is buying bonds.
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Re: Here we go again - warning about bonds

Postby dbr » Tue May 07, 2013 8:59 pm

AAA wrote:http://www.usatoday.com/story/money/business/2013/05/06/warren-buffett-federal-reserve-stocks-bonds-heinz/2138403/

From the article: "Buffett said on CNBC financial news network Monday that bonds are a "terrible" investment at the moment and that owners of long-term bonds may see big losses when interest rates eventually rise."

Some market timing advice from the sage.


It might be really helpful to underline those words "long term."
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Re: Here we go again - warning about bonds

Postby gerrym51 » Tue May 07, 2013 9:05 pm

i bought a bunch of bond fund yesterday :mrgreen:
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Re: Here we go again - warning about bonds

Postby z3r0c00l » Tue May 07, 2013 9:24 pm

Getting bored by these warnings. Much more fun to own bonds and watch the money roll in every month.
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Re: Here we go again - warning about bonds

Postby jdb » Tue May 07, 2013 9:43 pm

Well, Meredith Whitney, who helped me make some good muni bond ladder investments after her dire warnings of mass muni bond defaults some years ago which I ignored, is now quoted as supporting GO bonds from the non "Sand States" (Cal., AZ. NV and FL). Of course I will be looking at GO and essential service issues in those states. Also think that bond warnings fromm illuminaries like Buffet can be opportunity for us contrarians.
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Re: Here we go again - warning about bonds

Postby John3754 » Tue May 07, 2013 10:54 pm

Didn't I see an article a few months ago that said Buffet is dumping stocks and that the average investor should too?
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Re: Here we go again - warning about bonds

Postby gkaplan » Tue May 07, 2013 10:55 pm

Don't we have another thread going on this? Didn't we once have three threads going on this?
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Re: Buffet says no to bonds - recommends equities and cash

Postby Dieharder » Wed May 08, 2013 12:11 am

Purchasing some bonds tomorrow. No market timing, equity funds have gone way up, so have to sell some to rebalance to allocation. Money need to go somewhere, Vanguard bond funds are high quality. I don't know what the fuss is all about. It's the portfolio as a whole that matters. Stocks are doing well, so makes sense to sell some and buy some bonds. Reverse of that will happen sometime again.
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Re: Buffet says no to bonds - recommends equities and cash

Postby Pacific » Wed May 08, 2013 1:23 am

It's "Groucho Marx"

Here is the alleged conversation:

"Groucho, how do you invest your money?

I buy government bonds.

You'll never make any money doing that!

If I have enough of them, I will."

Here is another of his hilarious scenes (as Wolf J. Flywheel):

Wolf J. Flywheel (Groucho): Oh, hop in here. There's a few things I'd like to discuss with you. What I am about to say is intended for your ears alone.

Martha: Oh, Wolf!

Wolf: Martha, dear, there are many bonds that will hold us together through eternity.

Martha: Really, Wolf? What are they?

Wolf: Your Government Bonds, your Savings Bonds, your Liberty Bonds---and maybe in a year or two after we're married---

Martha: Yes?

Wolf: Who knows? There may be a little baby bond.

Martha: Oh, it all seems so wonderful! Tell me, Wolfie, dear, will we have a beautiful home?

Wolf: Of course. You're not planning on moving, are you?

Martha: No. But I'm afraid after we're married a while, a beautiful young girl will come along and---you'll forget all about me.

Wolf: Don't be silly. I'll write you twice a week.

Groucho was as funny as there was (is). I still remember that dumb toy duck which looked like Groucho falling from above during You Bet Your Life!!!
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Re: Here we go again - warning about bonds

Postby pingo » Wed May 08, 2013 5:15 am

I guess I agree that bonds look terrible right now, but only if they don't get worse later. Gas prices also look terrible, but I need both bonds and gas. So does Buffet. Perhaps if I were as smart as him, I'd be complaining. Honestly, I'm just happy to be able to save and invest!

:beer
Last edited by pingo on Wed May 08, 2013 10:13 am, edited 1 time in total.
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Re: Here we go again - warning about bonds

Postby nisiprius » Wed May 08, 2013 6:41 am

"owners of long-term bonds may see big losses when interest rates eventually rise." Well, this is perfectly true.

Or, to clarify it a bit,

1) Owners of individual long-term bonds may see big losses if they decided to, or are forced to sell them on the market when interest rates have risen.

Owners of individual high-grade bonds who hold to maturity will not see dollar losses, barring default.

Owners of individual high-grade bonds who hold to maturity may well see serious losses in buying power due to inflation, so they'd better be sure that they have bought them to meet known future fixed-dollar-number obligation.

Owners of long-term TIPS, who hold them to maturity, will, barring default, see neither, but may experience "V8 remorse" (I coulda had a V8!) comparing their results to those of someone who invested something else.

2) Owners of long-term bond mutual funds may see big losses if they do not hold for periods of time that are long compared to the fund's average duration, e.g. 15 years for Vanguard Long-Term Treasury.

3) Some kinds of bonds are "terrible investments right now" for some kinds of investors.
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Re: Here we go again - warning about bonds

Postby swaption » Wed May 08, 2013 8:32 am

Calhoon wrote:Hasn't Buffet been saying this for a couple years now? This is by no means a new sentiment.


Buffett is notorious for saying things for quite some time without any apparent market reaction. This was true prior to the tech bubble bursting. I believe this was also true regarding the US dollar some years back. This always gives people ample opportunity for comments like this, and then complacency. The conventional wisdom in the late 90's was simply that Buffett didn't completely understand tech. Granted, I'm not running out to sell all my bonds, but Buffett certainly seems to be right much of the time.
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Re: Here we go again - warning about bonds

Postby YDNAL » Wed May 08, 2013 11:40 am

AAA wrote:http://www.usatoday.com/story/money/business/2013/05/06/warren-buffett-federal-reserve-stocks-bonds-heinz/2138403/

From the article: "Buffett said on CNBC financial news network Monday that bonds are a "terrible" investment at the moment and that owners of long-term bonds may see big losses when interest rates eventually rise."

Some market timing advice from the sage.

This deal with Buffett and Bonds was already posted Monday in a related article (Bloomberg).
Link: viewtopic.php?f=10&t=115924
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Re: Here we go again - warning about bonds

Postby Middle » Wed May 08, 2013 1:58 pm

nisiprius wrote:"owners of long-term bonds may see big losses when interest rates eventually rise." Well, this is perfectly true.

Or, to clarify it a bit,

1) Owners of individual long-term bonds may see big losses if they decided to, or are forced to sell them on the market when interest rates have risen.

Owners of individual high-grade bonds who hold to maturity will not see dollar losses, barring default.

Owners of individual high-grade bonds who hold to maturity may well see serious losses in buying power due to inflation, so they'd better be sure that they have bought them to meet known future fixed-dollar-number obligation.

Owners of long-term TIPS, who hold them to maturity, will, barring default, see neither, but may experience "V8 remorse" (I coulda had a V8!) comparing their results to those of someone who invested something else.

2) Owners of long-term bond mutual funds may see big losses if they do not hold for periods of time that are long compared to the fund's average duration, e.g. 15 years for Vanguard Long-Term Treasury.

3) Some kinds of bonds are "terrible investments right now" for some kinds of investors.


+1
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Re: Here we go again - warning about bonds

Postby LadyGeek » Wed May 08, 2013 4:17 pm

gkaplan wrote:Don't we have another thread going on this? Didn't we once have three threads going on this?

Yes, we did. Thread #4 is now merged into here, which is in the Investing - Theory, News & General forum (news).

(Thread #3 is locked and points back to here.)

A few posts are out of order, but it doesn't impact the discussion.
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Re: Buffet says no to bonds - recommends equities and cash

Postby nedsaid » Thu May 09, 2013 12:15 am

I think Buffett is right that bonds are not attractive now.

It is sort of like what they say about old age, that it beats the heck out of the alternative. I am buying bonds with 40% of my new funds for investment and have about 1/3 of my portfolio in bonds and cash. I want to dampen the volatility of my portfolio and bonds are a great way to do this. Cash is even more unattractive than bonds and the other alternative would be Certificates of Deposit at a Federally Insured Bank or Credit Union.

I don't want a 100% stock portfolio. I don't have Buffett's billions. Being mostly a large insurance company, Berkshire Hathaway holds billions worth of bonds. So his company doesn't exactly practice what he preaches.
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Buffett on bonds

Postby lethean46 » Fri May 17, 2013 11:49 pm

[Merged with the above thread, see my post below. --admin LadyGeek]

I just watched part(s) of the 3 hour interview that Buffett did with Becky Quick on CNBC after the Berkshire Hathaway annual meeting. He has a strong aversion to bonds, currently. Usually he doesn't advise individual investors except to say that they should invest in a low cost S&P 500 index fund. I've never heard him mention asset allocation, bonds, or cash for instance - until this interview.

Paraphrasing, I believe that he said that some of his family, some friends, and shareholders have asked him what they should do re bonds. He said that one should keep enough cash on hand to be comfortable and the rest should be invested in the stock market. That the stock market is "reasonably" priced. That this is a terrible time to be in bonds. ETC. I'm afraid to restate more of what he said for fear that I misstate him.

It's best to listen to what he had to say here at minute 5:55:

http://finance.yahoo.com/video/buffett- ... 00291.html

FWIW. I thought his remarks were very blunt and might be important for consideration for some here.

ML
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Re: Buffett on bonds

Postby stemikger » Sat May 18, 2013 4:11 am

He is 100% right. However, you really need to know if you can handle the volatility of all equities. Having said that when the smartest investor this world has ever seen gives advice, how can any of us mere mortals argue and not take it. I often fantasize about investing with Warren when he was just starting out. However, I would have to be a time traveler because I wasn't born yet.

I wonder if I would have handed money to Warren at that time. This is the Warren I would have met.

http://www.youtube.com/watch?v=REhg_bv7srM

I once read an article called the "Buffett Bunch" and it was about a group of ordinary folks from Omaha who were mutli-millionaires and they were some original investors when Warren was just getting started. Most of them no one ever heard of because they act like regular folks and most of them have very simple tastes. Just like Warren himself.

It looks like Becky also took Warren's advice:

http://www.youtube.com/watch?v=I1PWBsUZvUE

Thanks for sharing the video.
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Re: Buffett on bonds

Postby z3r0c00l » Sat May 18, 2013 6:31 am

This presumes he knows anything about individual investors or the future of the bond market. A guy who buys companies for a living may not overlap with us much.
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Re: Buffett on bonds

Postby stemikger » Sat May 18, 2013 6:41 am

z3r0c00l wrote:This presumes he knows anything about individual investors or the future of the bond market. A guy who buys companies for a living may not overlap with us much.


I think it's a safe bet that interest rates will not stay this low for much longer. The stock market is doing great, the economy is picking up. I think everyone is on the same page when it comes to bonds and bond funds. The thing they are not on the same page is what the alternative option is. It's hard to disagree with the greatest investor in the world.
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Re: Buffett on bonds

Postby Howard Donnelly » Sat May 18, 2013 10:05 am

I understand that Jack Bogle and Warren Buffett are friends. I wish we could see an interview with the two of them discussing/debating this issue.
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Re: Buffett on bonds

Postby stemikger » Sat May 18, 2013 10:19 am

Howard Donnelly wrote:I understand that Jack Bogle and Warren Buffett are friends. I wish we could see an interview with the two of them discussing/debating this issue.


I think Jack Bogle has the same concerns. He is becoming increasingly concerned about fixing the Bond Index. He also did say pertaining to this issue is that there are no easy answers right now. I also saw an interview where he said 100% equities might be right for some people (i.e. maybe have a paid for house or social security and/or pension).
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Re: Buffett on bonds

Postby dbr » Sat May 18, 2013 10:23 am

It's going to be very interesting to see the conversation when the stock market has its next downtrend.
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Re: Buffett on bonds

Postby mike143 » Sat May 18, 2013 10:39 am

lethean46 wrote:He said that one should keep enough cash on hand to be comfortable and the rest should be invested in the stock market.

That is exactly what I am working on. Opened a Vanguard taxable account after maxing 401k and roth. Only have $500 in there to start with to make myself comfortable with the process/interface.
Nothing is free, someone pays.
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Re: Buffett on bonds

Postby stemikger » Sat May 18, 2013 10:45 am

dbr wrote:It's going to be very interesting to see the conversation when the stock market has its next downtrend.


Very true. That is when Staying the Course will surely be tested.
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Re: Buffett on bonds

Postby danwhite77 » Sat May 18, 2013 11:33 am

stemikger wrote:I wonder if I would have handed money to Warren at that time. This is the Warren I would have met.

http://www.youtube.com/watch?v=REhg_bv7srM

I once read an article called the "Buffett Bunch" and it was about a group of ordinary folks from Omaha who were mutli-millionaires and they were some original investors when Warren was just getting started. Most of them no one ever heard of because they act like regular folks and most of them have very simple tastes. Just like Warren himself.


Thanks so much for linking that video, it's terrific!

Regarding the Buffett Bunch - I attended the Berkshire shareholder meeting a few years ago. An old guy in overalls and a flannel shirt was standing behind me in line before they let us in. I overheard his conversation and he said that he had bought Berkshire in the old days because he was from Nebraska and wanted to support a local company. As I recall he had about $40 or $50 million in Berkshire A shares, though I could be wrong on the exact amount as I didn't really hear him very well. Whatever the amount was, it was in the millions of dollars.
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Re: Buffett on bonds

Postby G-Money » Sat May 18, 2013 11:38 am

I'm trying to remember the last time Buffet recommended bonds.
Don't assume I know what I'm talking about.
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Re: Buffett on bonds

Postby lethean46 » Sat May 18, 2013 11:40 am

stemikger wrote:
dbr wrote:It's going to be very interesting to see the conversation when the stock market has its next downtrend.


Very true. That is when Staying the Course will surely be tested.


Yes. Buffett said when bond yields rise, stock values will be "significantly" affected. However, he went on to say that stock prices would be significantly higher (or very, very much higher) than now in his lifetime and certainly within Becky's lifetime.

I think the best I can do is keep 3 years expenses in cash, maybe 5 years. Then purposely look at the current equity portfolio as +/- 20% rather than get get fixated on absolute #s. Come to terms with the idea that the stock market will adjust, again, and be prepared to HOLD, again.

The adjustment could happen over a relatively short period of time, or it could happen over years.

I know a few people who sold everything at the bottom, 3/2009. And I know a few others who couldn't bring themselves to buy at the bottom. Greed and fear are very powerful psychological forces. I think it's best for ME to do nothing. Not try to second guess what the market will do. But be mentally prepared for a market adjustment. Sooner, or later. Stay focused on the next 10 years and longer. And ignore the noise. That won't be easy. Because fall of 2008 to spring of 2009 was BRUTAL and is imprinted on my memory. But I know enough to know that I cannot jump in and out of the market, successfully. Period.

It will indeed be very interesting to watch this play out. As an observer. Not as a participant.

ML
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Re: Buffett on bonds

Postby tibbitts » Sat May 18, 2013 12:11 pm

stemikger wrote:
z3r0c00l wrote:This presumes he knows anything about individual investors or the future of the bond market. A guy who buys companies for a living may not overlap with us much.


I think it's a safe bet that interest rates will not stay this low for much longer. The stock market is doing great, the economy is picking up. I think everyone is on the same page when it comes to bonds and bond funds. The thing they are not on the same page is what the alternative option is. It's hard to disagree with the greatest investor in the world.

The alternatives are the problem. I think we could have said "not much longer" with regards to rates years ago. At some point higher rates might happen, although the economy I see every day isn't picking up at all. And it's possible that higher rates would tank the stock market to a much greater degree than bonds, so it's possible that you'd still be better off by holding some bonds that you can then rebalance (when your bonds are down 20% and your equities 40%.)

It seems like he's more advocating equities being a substitute for bonds than he's suggesting cash being a substitute. I'm not sure we'd be seeing all the talk about equities now, even with rates where they are now or lower, if we'd seen annual drops from those 2009 lows. Maybe not even from Buffett.

Paul
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Re: Buffett on bonds

Postby Strevlac » Sat May 18, 2013 12:31 pm

There has been a lot of talk about an inevitable increase in interest rates, but much less talk about our governments ability to pay higher rates on our national debt. What is it now, 13 trillion and rising? That's what has me thinking rates are going to be very, very low for the forseeable future. Of course I could have this all wrong but I haven't really seen anyone explain why that wouldn't be the case.
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