Why not include gold?

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folke123
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Why not include gold?

Post by folke123 » Wed Jul 09, 2014 5:29 am

Just as the topic states.

If I understand it correctly seen over a 40 year period gold has outperformed the S&P (Is there anyway I can see how it has performed with the dividends reinvested?) The one thing I can see is that it seems to be more volatile?

So if anyone could help me understand why we don't include gold, or show graphs of gold vs S&P or even better S&P with the dividends reinvested over as long a time as possible that would be great :)

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LAlearning
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Re: Why not include gold?

Post by LAlearning » Wed Jul 09, 2014 6:27 am

This has been discussed before. You can search the forum on the top right.

As I understand it, gold's long term return = inflation. So pass.

There are small periods of higher performance, but as Warren Buffett says " You can fondle the cube, but it will not respond". You can google why he said that as well.
I know nothing!

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Re: Why not include gold?

Post by mich_bogle » Wed Jul 09, 2014 6:28 am

Bogleheads seem fairly dismissive about gold as an investment (I am too ignorant to have much of an opinion either way). Here are some old threads about it:
viewtopic.php?t=83703
viewtopic.php?t=84241


The idea that gold outperforms the S&P500 over a 40 year period only seems to work if you cherry pick the data and select ~2010 as your end year, when the stock market was bottoming out and the gold market was peaking. Hardly seems fair...

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Re: Why not include gold?

Post by Professor Emeritus » Wed Jul 09, 2014 6:43 am

In fairness, the poster appears to be from Sweden. Europeans often have a different perspective on historical risks

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Re: Why not include gold?

Post by billydelp4 » Wed Jul 09, 2014 7:12 am

I like what Buffet has to say about investing in gold:

"Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be $9.6 trillion. Call this cube pile A.

"Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-aroundmoney (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

"A century from now the 400 million acres of farmlandwill have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever thecurrency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will beunchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."



Read more: http://www.nasdaq.com/article/why-warre ... z36yM4Nu5P

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Re: Why not include gold?

Post by JoMoney » Wed Jul 09, 2014 7:33 am

I have a gold crown on a tooth, I have some fancy gold-plated audio cables... Beyond that, I don't have much use for gold. Especially not in my investment portfolio. It doesn't yield anything. If I bought it, I would at least want it to be useful, even if it was just an emotional/psychological good feeling from owning it... For some people it does that, for me its just a shiny rock. Even on jewelry and watches I prefer silver/brushed steel.
Warren Buffet wrote:Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
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Re: Why not include gold?

Post by nisiprius » Wed Jul 09, 2014 7:53 am

folke123 wrote:Just as the topic states.

If I understand it correctly seen over a 40 year period gold has outperformed the S&P (Is there anyway I can see how it has performed with the dividends reinvested?) The one thing I can see is that it seems to be more volatile?

So if anyone could help me understand why we don't include gold, or show graphs of gold vs S&P or even better S&P with the dividends reinvested over as long a time as possible that would be great :)
The best answer to your question is "recency."
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During the period from 2000 to 2012 gold got a fair amount of attention in this forum, and since then discussion has died down. If you are personally interested in gold, I would suggest looking at Craig Rowland's website, http://www.crawlingroad.com . His postings in this forum have been consistently levelheaded and knowledgeable, and the book he co-authored on The Permanent Portfolio, which I haven't read myself, has been praised here--Taylor Larimore called it "a gem."

Gold isn't a "mainstream" investment. In part, to be fair, it's because before the creation of the GLD ETF, there was no way for ordinary brokerages to sell it or make money off of it. Because its long-term behavior has been extremely spiky, how it seems to have performed, in or outside of a portfolio, depends enormously on the particular choice of the pair of endpoints. Like other commodities, it has registered huge gains and huge losses over rather short periods of time and most of the interest in it by the general public is speculative. The Permanent Portfolio advocates like Craig Rowland, however, do talk about a long-term, disciplined, stay-the-course, Boglehead-like approach.

An issue with gold that can't be sidestepped is that--just like bitcoin--it has a non-financial dimension. That is to say, advocacy for gold is sometimes associated with certain political, ideological, and macroeconomic views. It's important to at least keep an eye out for this, and to be sure you know how you personally stand on these issues.

I personally am a gold skeptic and own no gold in any form except my cheap 10K wedding ring (and the plating on some board-edge connectors in my electronic gear). Bogleheadish writers, such as Burton Malkiel in A Random Walk Down Wall Street, and Jack Bogle itself, have expressed some cautious and tentative support for a near-token holding of gold in a portfolio, e.g. less than 5%. I don't have the current edition but in the 9th edition Malkiel expresses a rather hedged wishy-washy--or refreshingly frank--opinion:
Burton Malkiel, on pp. 306-7 wrote:Tiptoe through the fields of gold, collectibles, and other investments"

In previous editions of this book I took different positions on whether gold belongs in a well-diversified portfolio... at the start of the 1980s I [was] quite negative.... twenty years late... I became more positive... today, with gold selling at prices near an all-time high I find it hard to be enthusiastic. But there could be a modest role for gold in your portfolio.... even modest holdings (say 5 percent of the portfolio) can be of help to an investor... [but] prudence suggests--at best--a limited role for gold...
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Re: Why not include gold?

Post by staythecourse » Wed Jul 09, 2014 8:15 am

As I have said numerous times it is EVERY investor's responsibility to understand the adv. and disadv. of EVERY asset class and decide for themselves if it has a role in their portfolio. For example: Folks often wonder why Harry Browne of PP fame did not include international equities into his portfolio. The reason is he realized the reason to have international equities is: 1. Diversification and 2. Currency hedge against dollar. Well his addition of 25% gold did the same and thus no need for international equities.

Gold's adv: 1. Crisis hedge, 2. Curency hedge, 3. Low/ no correlation to stocks and bonds
Gold's disadv: 1. Low return and high volatility long term 2. Speculative investment, 3. Taxed as collectible on LTCG

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Why not include gold?

Post by DFrank » Wed Jul 09, 2014 8:17 am

Personally, I have two issues with gold (or silver for that matter) as an investment. First, there is too much emotion behind price fluctuations. Second, it's difficult to acquire without paying large transaction costs.
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Re: Why not include gold?

Post by Grt2bOutdoors » Wed Jul 09, 2014 8:32 am

Rock gets dug out of the ground, after a laborious process, gold is refined, smelted and formed into various forms, shapes and sizes.
Gold earns no interest, pays no interest and uses economic resources to protect, it has marginal utility. Why spend or invest your money when no return is to be had?
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Re: Why not include gold?

Post by staythecourse » Wed Jul 09, 2014 8:34 am

DFrank wrote:Personally, I have two issues with gold (or silver for that matter) as an investment. First, there is too much emotion behind price fluctuations. Second, it's difficult to acquire without paying large transaction costs.


Funny the idea behind emotions causing price fluctuations is the reason I do like gold in a portfolio. If folks are confident people put money in stocks and if they are down the money flows to treasuries and gold. Seems like great diversification to me. Harry Browne wrote in his book in the early 80's a line that was true then and true going forward. Paraphrasing, "When there is stress in the market money will flow to the dollar (Treasuries and cash) unless the anxiety is in the dollar itself then it will flow to the next reserve currency in the world which is gold". So fast forward 30+ years from his book and no surprise: treasuries, cash, and gold do well when the market tanks.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Why not include gold?

Post by staythecourse » Wed Jul 09, 2014 8:36 am

Grt2bOutdoors wrote:Why spend or invest your money when no return is to be had?


The same argument can be made for owning a home vs. renting. If one makes money is pure speculation, i.e. how much another is willing to pay for it, yet most responsible investors like owning anyway.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Why not include gold?

Post by Grt2bOutdoors » Wed Jul 09, 2014 8:41 am

I own because I choose not to rent. It's called "quality of life". If walking around with bullion or shiny chains around your neck or just sitting at a table counting gold coins makes you happy, that's fine too. Personally, gold offers no useful utility in enjoying my life.
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Re: Why not include gold?

Post by Index Fan » Wed Jul 09, 2014 8:44 am

Keeping a small portion of one's portfolio in precious metals is a defensible and reasonable choice IMHO. Think of it as financial meltdown insurance. This would have come in very handy in the 1998–2002 Argentine great depression and in several 20th century instances of economies collapsing.

I'd limit it to no more than 5-10% of one's portfolio.
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Re: Why not include gold?

Post by Longtimelurker » Wed Jul 09, 2014 8:50 am

Over the long run Gold has tracked inflation with stock-like volatility. The Harry Brown PP looks genius when, inevitably, the volatility inherent in gold favors the investor. Of course the inverse is also true. Given that gold is STILL, after huge declines from peak, highly deviated from its mean - it is far more likely that gold will not keep up with inflation and volatility will favor the downside until we get closer to the historic mean.

Add to that that gold doesn't produce anything, and entirely relies on "the greater fool" for its returns, and any rational investor would stay away. Of course the gold bugs - who by the way seem to have abandoned this forum since gold peaked - will claim all sorts of marketing benefits of gold as a currency. However, I have yet to be able to buy milk at the grocery with gold dust... hmmm...
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

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Re: Why not include gold?

Post by Grt2bOutdoors » Wed Jul 09, 2014 8:51 am

This isn't Argentina. I can see holding gold if you lived in a 3rd world country, but I do not.
If one is so worried about the economic climate where they currently reside, then do as most residents of the US have done at one time or another - migrate out of that situation. Gold is not needed to protect against financial calamities. Mobility is! We see people doing it every day - giving up their citizenship to avoid tax confiscation. They want their cake and to eat it too, but at the first sign of trouble guess whose doorbell gets rung? :annoyed
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Re: Why not include gold?

Post by Ged » Wed Jul 09, 2014 9:05 am

staythecourse wrote:
The same argument can be made for owning a home vs. renting. If one makes money is pure speculation, i.e. how much another is willing to pay for it, yet most responsible investors like owning anyway.

Good luck.


Owning vs renting a home can be treated as a simple economic decision. Sometimes owning wins. Especially if you plan to live in that home for a long time.

http://www.trulia.com/rent_vs_buy/

I don't see how there is a similar objective analysis for gold.

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Re: Why not include gold?

Post by magneto » Wed Jul 09, 2014 9:42 am

Have held gold in our portfolio, but it was scary as there was no rational way of determining whether it was cheap or expensive. With other assets bonds,stocks, cash and even real estate, valuations can be determined by measures such as earnings or yield. What to use for gold?
As said above by others, it is a speculation depending on the 'greater fool' theory, or 'castles in the air'.
What happens if one day mankind discovers a way of making gold cheaply?
Ever buy gold again? Maybe, but the scariness of the unpredictable pricing is offputting.
The Permanent Portfolio advocates do however make a strong case.
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Re: Why not include gold?

Post by Mike Scott » Wed Jul 09, 2014 9:55 am

Under the conditions that favor silver/gold as a last ditch barrier to poverty, I would rather have food/water/ammo and self sufficiency. Gifts of gold jewelry on the other hand is an investment although it's not really a financial investment. :)

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Re: Why not include gold?

Post by Index Fan » Wed Jul 09, 2014 10:20 am

This isn't Argentina. I can see holding gold if you lived in a 3rd world country, but I do not.


Argentina isn't a 3rd-world country- or wasn't until some horrible economic policies were enacted. And 'it hasn't happened here yet' is not a sound argument to my way of thinking. They probably said that in Japan in the mid-80s and that didn't prove a good guide for the future.
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Re: Why not include gold?

Post by staythecourse » Wed Jul 09, 2014 10:39 am

Ged wrote:
staythecourse wrote:
The same argument can be made for owning a home vs. renting. If one makes money is pure speculation, i.e. how much another is willing to pay for it, yet most responsible investors like owning anyway.

Good luck.


Owning vs renting a home can be treated as a simple economic decision. Sometimes owning wins. Especially if you plan to live in that home for a long time.

http://www.trulia.com/rent_vs_buy/

I don't see how there is a similar objective analysis for gold.


Not so. No one knows what the sell price on your home is until you sell it so no way to know if it is better to rent or buy. It is a pure speculation play on assuming you know what the future price of your home will be on sale to go back and determine if you should have rented or bought. It is not a constant value and changes with, no surprise, the economy. Did folks selling their houses in dot com era expect to make such a killing when they were deciding to rent vs. buy a decade before? Did folks who needed to sell in 2008-9 estimate their home values so low when they were looking to rent vs. buy a decade before?

My point was not to compare owning a house like owning gold. My point is both are speculation plays. Both involve getting or buying at the price set by the climate around you. That is true for the short term for stocks as well, but the difference is stocks have inherent value (the discounted price of future earnings) which we hope will approximate the future value when we need to sell.

Nothing wrong with owing a house, gold, bonds, cash, a dumpster, a can of dog food, etc... It is up to each investor to realize the adv. and disadv. of each option.

Good luck.
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Re: Why not include gold?

Post by surfstar » Wed Jul 09, 2014 10:47 am

You can't eat gold.

Maybe you could throw a brick of gold at some prey. Otherwise, I fail to see how it will help in a financial/economic meltdown or crises. Stockpile food and weapons if this is what you're actually worried about, though.

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Re: Why not include gold?

Post by Buddtholomew » Wed Jul 09, 2014 11:33 am

Avoid looking at gold in isolation and evaluate the investment as part of a diversified portfolio of stocks, bonds and cash.

I personally prefer sitting on a four-legged stool - stocks, bonds, gold and cash.
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Re: Why not include gold?

Post by Call_Me_Op » Wed Jul 09, 2014 11:56 am

Buddtholomew wrote:Avoid looking at gold in isolation and evaluate the investment as part of a diversified portfolio of stocks, bonds and cash.

I personally prefer sitting on a four-legged stool - stocks, bonds, gold and cash.


I agree, although I don't think that all four legs need to have the same length.
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Re: Why not include gold?

Post by pjstack » Wed Jul 09, 2014 1:12 pm

But WHY do all governments think it is important to have gold reserves?

Why is Germany trying to "repatriate" its gold from the UK?

If gold is so worthless, why do nations squirrel away tons of it?

Really, I'm serious. No one here has explained that, and I'm curious.
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Re: Why not include gold?

Post by Jack FFR1846 » Wed Jul 09, 2014 1:30 pm

I have some silver coins. I can sell them at any coin shop, pawn shop or my local bullion dealer. I would expect to get something less than bid.

I think getting a few tank cars of crude might be a good idea too. I have room in my yard. Just have to figure out how to sell them when the price goes up
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Re: Why not include gold?

Post by Clearly_Irrational » Wed Jul 09, 2014 1:44 pm

I'm mildly pro-gold, but before you decide to add some you have to ask "What am I trying to accomplish by adding gold to my portfolio?" If you can't answer that question in detail then you can't make a rational decision as to whether it makes sense to hold some or not.

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Re: Why not include gold?

Post by staythecourse » Wed Jul 09, 2014 1:47 pm

surfstar wrote:You can't eat gold.

Maybe you could throw a brick of gold at some prey. Otherwise, I fail to see how it will help in a financial/economic meltdown or crises. Stockpile food and weapons if this is what you're actually worried about, though.


I do agree if there is a total meltdown of civilization food and ammo are more important to protect your land and survive, BUT... There is a HUGE space in between of normal day life and the end of the world. In those certain times when there is fear of what is going around in the world what everyone wants is LIQUIDITY. That is why folks usually flock to the U.S. dollar, but if there is worry of the dollar itself's strength then they will flock to the time and tested reserve currency of the world and that is gold. It isn't like I like that fact, but it doesn't change the fact gold is viewed as the ultimate currency. Do you see world banks keeping any other currency as a reserve? Gold is and will always be the currency of last resort. Likely because it has a long history, in limited supply (only what you can dig up from the earth), can't be mass produced (i.e. all fiat currencies), and not used for anything else commercially other then a currency.

Good luck.
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Re: Why not include gold?

Post by gerntz » Wed Jul 09, 2014 1:50 pm

I own GLD at about 5% of my assets. There are clearly uses for it or it wouldn't be mined or owned at all. You can like or not like those uses personally.

What should its price be? An article in the WSJ today states that Au mining companies are in trouble because they can't make money mining & refining at current prices.

My guess is that there will still be future uses for Au. If so, then available supply should diminish at current prices since the mining companies likely aren't going to mine much.

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Re: Why not include gold?

Post by minesweep » Wed Jul 09, 2014 2:01 pm

1. "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

2. "The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn't going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time."

Top 7 Warren Buffett Quotes on Gold Investing

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Re: Why not include gold?

Post by Phineas J. Whoopee » Wed Jul 09, 2014 2:02 pm

pjstack wrote:But WHY do all governments think it is important to have gold reserves?

I dunno. Tradition? You attributing deep secret knowledge to governments in such a way that everything they do makes rational sense?

pjstack wrote:Why is Germany trying to "repatriate" its gold from the UK?

German gold bugs and nationalists. Plus, it was important for it to be stored elsewhere while West Germany was the primary battlefield for the next ground war in Europe. The target amount to be stored inside Germany is only 50% of its total quantity. Quite a lot is stored for free by the NY Fed, which it does as a courtesy to other countries.

pjstack wrote:If gold is so worthless, why do nations squirrel away tons of it?

And that's why I decided to respond. What's this "if gold is so worthless" phraseology? Who made it up? Where does it come from? Spot quote right now is $1,328.50 / toz. Is $1,328.50 "worthless?" You're taking people saying "I don't think gold is a good component of an individual portfolio" and rephrasing it as "gold is so worthless." Why do that?

pjstack wrote:Really, I'm serious. No one here has explained that, and I'm curious.

Really? Are you? Or do you know the truth? Why don't you tell us the real answers?

PJW
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Re: Why not include gold?

Post by Index Fan » Wed Jul 09, 2014 2:18 pm

Phineas J. Whoopee wrote:
pjstack wrote:But WHY do all governments think it is important to have gold reserves?

I dunno. Tradition?



Thanks for the good belly laugh!
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Re: Why not include gold?

Post by Clearly_Irrational » Wed Jul 09, 2014 2:27 pm



Be careful quoting Warren, he doesn't like bonds either.

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Re: Why not include gold?

Post by kenyan » Wed Jul 09, 2014 2:52 pm

The Bogleheads' investment philosophy, straight from the wiki:

Develop a workable plan
Invest early and often
Never bear too much or too little risk
Diversify
Never try to time the market
Use index funds when possible
Keep costs low
Minimize taxes
Invest with simplicity
Stay the course


Is gold incompatible with this? No, it is not. The Permanent Portfolio, or other reasonable portfolios that implement gold/precious metals/commodities as part of the plan can certainly be implemented in a Boglehead-like fashion, and I'm sure many (though certainly not anywhere close to the majority) of those here do invest in gold.

I don't invest in gold, because I consider it to be a store of value in the long term, and a speculative investment in the short term, with little expectation of it beating the inflation rate. I like real-return investments, and I like stable investments. Stocks provide the former, and bonds provide the latter (they also used to provide the former, but with current yields that may not continue). Gold provides neither. I can understand wanting to implement it as part of a diversified portfolio, since it may have low correlation to other volatile investments, but I'm ok with omitting it in favor of other volatile real-return investments (e.g. international stocks, REITs), even if their correlations are higher.
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Re: Why not include gold?

Post by Longtimelurker » Wed Jul 09, 2014 3:00 pm

Clearly_Irrational wrote:


Be careful quoting Warren, he doesn't like bonds either.


This is incredibly misleading. Buffett keeps 10's of billions in TBills. This is a more extreme version of Bernstien's advocated position to keep your "bonds" of the highest quality and lowest risk.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

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Re: Why not include gold?

Post by Clearly_Irrational » Wed Jul 09, 2014 3:18 pm

Longtimelurker wrote:This is incredibly misleading. Buffett keeps 10's of billions in TBills. This is a more extreme version of Bernstien's advocated position to keep your "bonds" of the highest quality and lowest risk.


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

TBills are cash not bonds in investing speak. So, no, it's not misleading, he really doesn't advocate holding bonds for the average investor.

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Re: Why not include gold?

Post by kenyan » Wed Jul 09, 2014 3:28 pm

Clearly_Irrational wrote:
Longtimelurker wrote:This is incredibly misleading. Buffett keeps 10's of billions in TBills. This is a more extreme version of Bernstien's advocated position to keep your "bonds" of the highest quality and lowest risk.


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

TBills are cash not bonds in investing speak. So, no, it's not misleading, he really doesn't advocate holding bonds for the average investor.


Eh, cash is indistinguishable from a zero-duration bond. Semantics; it's all fixed income.
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Re: Why not include gold?

Post by Ged » Wed Jul 09, 2014 3:30 pm

staythecourse wrote:Not so. No one knows what the sell price on your home is until you sell it so no way to know if it is better to rent or buy.


Selling price can be completely eliminated from the rent/buy decision calculation. You do not have to know it because it can be assumed to be zero if you want to be ridiculously conservative.

You of course don't have to go to that length; there is historical data on real estate prices going back several hundred years that you can use to make a series of estimates on what the price will be.

All of that leads to the conclusion that you can certainly come up with a rational objective rent/buy decision.

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Re: Why not include gold?

Post by Clearly_Irrational » Wed Jul 09, 2014 3:40 pm

kenyan wrote:Eh, cash is indistinguishable from a zero-duration bond. Semantics; it's all fixed income.


If you want to be that way about it then sure, he's fine with zero-duration bonds for your emergency fund but he advocates against holding any longer duration notes purposes of investing. Which is pretty much what I said when I mentioned he doesn't recommend bonds. You're just nitpicking in order to try and make his position seem more main stream. Don't get me wrong, I happen to think Warren is one sharp cookie and I'm not even sure he's wrong about the bonds but lets not fool ourselves into thinking he's a Boglehead type investor.

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Re: Why not include gold?

Post by JoMoney » Wed Jul 09, 2014 3:43 pm

Warren Buffett, 2011 Annual Letter wrote: http://www.berkshirehathaway.com/letters/2011ltr.pdf
...Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge. ...
...High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments – and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label. ...
...Under today’s conditions, therefore, I do not like currency-based investments. ...
...Though we’ve exploited both opportunities in the past – and may do so again – we are now 180 degrees removed from such prospects. Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt:
Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why not include gold?

Post by Ged » Wed Jul 09, 2014 3:56 pm

pjstack wrote:But WHY do all governments think it is important to have gold reserves?

Why is Germany trying to "repatriate" its gold from the UK?

If gold is so worthless, why do nations squirrel away tons of it?

Really, I'm serious. No one here has explained that, and I'm curious.


Here is one explanation.

http://philipndiehl.com/2014/04/28/fort ... -reserves/

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Re: Why not include gold?

Post by Ged » Wed Jul 09, 2014 4:04 pm

Clearly_Irrational wrote:


Be careful quoting Warren, he doesn't like bonds either.


Maybe so, but he did say investors should have cash to reduce volatility.

http://www.usatoday.com/story/money/bus ... z/2138403/

My take on it is that he doesn't like bonds as an investment. However I think he'd be ok with short or intermediate term fixed income as a mechanism to let you sleep.

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Re: Why not include gold?

Post by Clearly_Irrational » Wed Jul 09, 2014 5:00 pm

Ged wrote:Maybe so, but he did say investors should have cash to reduce volatility.

http://www.usatoday.com/story/money/bus ... z/2138403/

My take on it is that he doesn't like bonds as an investment. However I think he'd be ok with short or intermediate term fixed income as a mechanism to let you sleep.


I think he'd be ok with "cash" Tbills and other short duration investments, especially for anyone with more than the FDIC limit amount, but I doubt he'd endorse intermediate term. Essentially his argument is that you're not being paid appropriately for that risk at current rates.

I'm not sure I disagree, but I am pretty sure I couldn't handle the volatility of a 100% stock portfolio psychologically unless I used something to fake myself out like directly held dividend stocks where I could pretend that the asset prices didn't matter since the payments were still coming in. (Not a real difference, just a mental one)

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Re: Why not include gold?

Post by pjstack » Wed Jul 09, 2014 5:05 pm

Ged wrote:
pjstack wrote:But WHY do all governments think it is important to have gold reserves?

Why is Germany trying to "repatriate" its gold from the UK?

If gold is so worthless, why do nations squirrel away tons of it?

Really, I'm serious. No one here has explained that, and I'm curious.


Here is one explanation.

http://philipndiehl.com/2014/04/28/fort ... -reserves/


Thanks for the link,Ged. It was interesting.
pjstack

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Re: Why not include gold?

Post by Longtimelurker » Thu Jul 10, 2014 7:07 am

Clearly_Irrational wrote:
kenyan wrote:Eh, cash is indistinguishable from a zero-duration bond. Semantics; it's all fixed income.


If you want to be that way about it then sure, he's fine with zero-duration bonds for your emergency fund but he advocates against holding any longer duration notes purposes of investing. Which is pretty much what I said when I mentioned he doesn't recommend bonds. You're just nitpicking in order to try and make his position seem more main stream. Don't get me wrong, I happen to think Warren is one sharp cookie and I'm not even sure he's wrong about the bonds but lets not fool ourselves into thinking he's a Boglehead type investor.


i think his recommended portfolio for his wife, 90 equities / 10 tbills is very boglehead.....

ill add that many here are limiting their durations in FI to the point of 0.... which would be the same as tbills, just different instruments for different scale
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Re: Why not include gold?

Post by Clearly_Irrational » Thu Jul 10, 2014 10:20 am

Longtimelurker wrote:i think his recommended portfolio for his wife, 90 equities / 10 tbills is very boglehead.....


That's an incredibly risk heavy portfolio and I personally don't think it really matches the Boglehead philosophy especially given her age. A more Bogleheadish setup would be 40-60% intermediate term bonds rather than 10% "cash".

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Re: Why not include gold?

Post by kenyan » Thu Jul 10, 2014 10:41 am

Clearly_Irrational wrote:
Longtimelurker wrote:i think his recommended portfolio for his wife, 90 equities / 10 tbills is very boglehead.....


That's an incredibly risk heavy portfolio and I personally don't think it really matches the Boglehead philosophy especially given her age. A more Bogleheadish setup would be 40-60% intermediate term bonds rather than 10% "cash".


Buffett is part-Boglehead. His stance on bonds/T-bills is too risky for most Bogleheads' preferences, and most (though definitely not all, incluing Mr. Bogle himself) don't agree with his stance on sticking to domestic stocks only, particularly leaning toward large-cap. However - for investors who aren't himself - he does recommend low-cost index funds, staying the course, buying for the long term.

Regardless, I think the Buffett discussion is off-topic and probably should be discontinued in this thread that's supposed to be about gold.
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Re: Why not include gold?

Post by Longtimelurker » Thu Jul 10, 2014 10:52 am

Clearly_Irrational wrote:
Longtimelurker wrote:i think his recommended portfolio for his wife, 90 equities / 10 tbills is very boglehead.....


That's an incredibly risk heavy portfolio and I personally don't think it really matches the Boglehead philosophy especially given her age. A more Bogleheadish setup would be 40-60% intermediate term bonds rather than 10% "cash".



There are PLENTY of boglehead who are 80 - 100% equities. Stop digging. Besides, the risk of this portfolio needs to be considered within the context of scale. With billions of dollars, this isn't risky at all.
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Re: Why not include gold?

Post by Gattamelata » Thu Jul 10, 2014 11:22 am

Longtimelurker wrote:
Clearly_Irrational wrote:
Longtimelurker wrote:i think his recommended portfolio for his wife, 90 equities / 10 tbills is very boglehead.....


That's an incredibly risk heavy portfolio and I personally don't think it really matches the Boglehead philosophy especially given her age. A more Bogleheadish setup would be 40-60% intermediate term bonds rather than 10% "cash".



There are PLENTY of boglehead who are 80 - 100% equities. Stop digging. Besides, the risk of this portfolio needs to be considered within the context of scale. With billions of dollars, this isn't risky at all.


Exactly. 90/10 for Mrs. Buffett is far more conservative than your AA or mine, simply because that 10% in her hypothetical bond holdings would generate more in monthly income than most (if not all) folks here have in their entire portfolios.

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