Warren Buffet Portfolio Critique

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Aeiouoiea
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Warren Buffet Portfolio Critique

Post by Aeiouoiea » Thu Sep 27, 2018 6:20 pm

What do y'all make of the advice Warren Buffets suggests?

90%-- S&P 500 Index Fund Admiral Shares (VFIAX)
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)

Dave55
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Re: Warren Buffet Portfolio Critique

Post by Dave55 » Thu Sep 27, 2018 6:47 pm

Don't take asset Allocation Advice from Billionaires:

https://awealthofcommonsense.com/2018/0 ... lionaires/


Dave

retiredjg
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Re: Warren Buffet Portfolio Critique

Post by retiredjg » Thu Sep 27, 2018 6:51 pm

The "advice" was for one portfolio - his own estate after he dies. It has nothing to do with anyone else.

It certainly is not "advice" for anyone other than the people handling his estate.

I doubt any of us know enough to critique whether it is appropriate for his estate or not. Seems ok to me though. :happy

Aeiouoiea
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Re: Warren Buffet Portfolio Critique

Post by Aeiouoiea » Thu Sep 27, 2018 6:56 pm

I think that is also the advice he gave to Lebron James...

Living Free
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Re: Warren Buffet Portfolio Critique

Post by Living Free » Thu Sep 27, 2018 6:59 pm

it's basically a 2 fund portfolio. I'd personally prefer intermediate term bonds and to have a total US stock market for the mid/small caps and international stocks too though.

sambb
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Re: Warren Buffet Portfolio Critique

Post by sambb » Thu Sep 27, 2018 7:00 pm

I dont take much advice from people at extremes of age - young or old.. but glad for him that he made it to 88.

Aeiouoiea
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Re: Warren Buffet Portfolio Critique

Post by Aeiouoiea » Thu Sep 27, 2018 7:14 pm

Living Free wrote:
Thu Sep 27, 2018 6:59 pm
it's basically a 2 fund portfolio. I'd personally prefer intermediate term bonds and to have a total US stock market for the mid/small caps and international stocks too though.
At what percentages?

Ron Scott
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Re: Warren Buffet Portfolio Critique

Post by Ron Scott » Thu Sep 27, 2018 7:31 pm

I love it! It requires you have alll your needs and possible desires already met, but it’s grrat!

Sign me up.

(and note: no international)
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Warren Buffet Portfolio Critique

Post by alex_686 » Thu Sep 27, 2018 7:34 pm

Aeiouoiea wrote:
Thu Sep 27, 2018 6:56 pm
I think that is also the advice he gave to Lebron James...
Both he and LeBron James have incredibly high ability to talk risk. I am assuming that both of them could suffer a 50% market loss, never work another day in their lives, and comfortable hit all of their required financial goals.

inbox788
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Re: Warren Buffet Portfolio Critique

Post by inbox788 » Thu Sep 27, 2018 8:05 pm

Aeiouoiea wrote:
Thu Sep 27, 2018 6:20 pm
What do y'all make of the advice Warren Buffets suggests?

90%-- S&P 500 Index Fund Admiral Shares (VFIAX)
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)
Great advice for billionaires. That’s at least $900M in stocks and $100M in bonds. Even if you seldom rebalanced, you could spend nearly $10M in bonds each year. I could survive on that.

NoHeat
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Re: Warren Buffet Portfolio Critique

Post by NoHeat » Thu Sep 27, 2018 8:11 pm

Aeiouoiea wrote:
Thu Sep 27, 2018 6:20 pm
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)
The size of a portfolio matters.

His wife will get lots and lots of money. 10% of that will still be a lot more than needed to live in Warren’s simple brick house in Omaha. The other 90% could be raked into a pile and burned, and she would still sleep well.

That being said, Warren, despite being an historically great stock picker, is showing considerable respect for not only Vanguard, but also the index fund concept, and the idea of a simple portfolio.

Overall, he is presenting an excellent model for a Boglehead widow with a gazillion dollars.

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CyberBob
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Re: Warren Buffet Portfolio Critique

Post by CyberBob » Thu Sep 27, 2018 10:20 pm

NoHeat wrote:
Thu Sep 27, 2018 8:11 pm
The size of a portfolio matters.
In this case, I don’t think it does.

During the CNBC interviews with Becky Quick, she asked about this recommendation and Buffett explained further.

He said the ‘short-term governments’ were so she could withdraw from those in years the market was down.

He also talked about her having a 3 or 4% withdrawal rate, the same numbers we talk about here, whatever the overall portfolio size.

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JoMoney
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Re: Warren Buffet Portfolio Critique

Post by JoMoney » Thu Sep 27, 2018 11:49 pm

He most certainly has offered similar enough advice to others, even in his letter where he mentions this portfolio for his wifes bequest he is offering it as an example of him following the advice he gives to others.
I'm many years off from retirement, and it is more or less the portfolio I'm following. I'm not just in a Vanguard treasury fund though, I have savings bonds and money market accounts too...

http://web.iese.edu/jestrada/PDF/Resear ... ett-AA.pdf
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aj76er
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Re: Warren Buffet Portfolio Critique

Post by aj76er » Fri Sep 28, 2018 12:22 am

The 90/10 stock/bond is an AA that most target retirement funds start out as these days. However, they tend to be more globally diversified.

For those with 50x or greater portfolios, I think it's a fine allocation. For those retiring with smaller portfolios, having more bonds can actually improve the max SWR rate a bit by limiting sequence of returns risk.

As a comparison, William Bernstein recommends a ~ 70/30 stock/bond split for life in his "if you can" booklet written for millennials.

In general I think we are seeing higher stock//bond ratios recommended then was done historically. I'm not sure if this is because of historically low forward-looking returns; or because broad, diversified indexes make stocks safer to hold; or perhaps a combination of these two.
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stemikger
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Re: Warren Buffet Portfolio Critique

Post by stemikger » Fri Sep 28, 2018 12:42 am

Like others said, it is basically a two fund portfolio. I'm sure it will beat more conservative asset allocations in the long term, but you have to have the stomach for it. I personally do not, so I will hold my one fund portfolio (as per Jack's suggestion) the Vanguard Balanced Index Fund helps me sleep like a baby. My goal is to retire with dignity, not be the richest man in the cemetery or in my case, the urn.
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billfromct
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Re: Warren Buffet Portfolio Critique

Post by billfromct » Fri Sep 28, 2018 2:16 am

According to "the Google", Warren Buffett is worth about $86b or $87b. Let's make it conservative & say $80b.

So his legacy to his wife (assuming no inheritance taxes) would be $8.0b Treasuries/$72.0b stocks.

I believe his wife is about 72 years old now.

I guess she would be able to survive on $8.0b for the next 15-20 years if the stock market tanked.

bill

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stemikger
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Re: Warren Buffet Portfolio Critique

Post by stemikger » Fri Sep 28, 2018 2:32 am

billfromct wrote:
Fri Sep 28, 2018 2:16 am
According to "the Google", Warren Buffett is worth about $86b or $87b. Let's make it conservative & say $80b.

So his legacy to his wife (assuming no inheritance taxes) would be $8.0b Treasuries/$72.0b stocks.

I believe his wife is about 72 years old now.

I guess she would be able to survive on $8.0b for the next 15-20 years if the stock market tanked.

bill
Yes, but his wife is not getting any of that, it is already pledged to the Bill and Melinda Gates Foundation. He has often said he is leaving his kids enough to do whatever they want, but not enough to do nothing. Many have guessed he is leaving his wife about 20 million. Nothing to sneeze at, but not Berkshire billions.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Warren Buffet Portfolio Critique

Post by deltaneutral83 » Fri Sep 28, 2018 8:15 am

He's already given away about 30-40 billion of BRK stock over the last 20 years. Why do we not mention the fact that he has repeatedly stated he's giving away 99% of his wealth to charities (the Gates/his kids)? I think his wife will get a couple hundred mil but I haven't heard anything recently on that. He is not leaving his wife 90 billion to manage, these posts are wildly inaccurate.

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Re: Warren Buffet Portfolio Critique

Post by Aeiouoiea » Fri Sep 28, 2018 1:07 pm

I was under the impression that this was his basic advice to the average investor.

Throw as much as you can in the S&P-500 index and re-balance once a year, keeping 10% of your portfolio value in short-term treasury bonds.

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DWesterb2iz2
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Re: Warren Buffet Portfolio Critique

Post by DWesterb2iz2 » Fri Sep 28, 2018 1:22 pm

I’ve posted here that a wealthy guy told me he advises “two years’ expenses in cash and the rest in the S&P 500”. It’s what he does, he says. Here’s that discussion:

viewtopic.php?f=10&t=247287

retiredjg
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Re: Warren Buffet Portfolio Critique

Post by retiredjg » Fri Sep 28, 2018 1:47 pm

Aeiouoiea wrote:
Fri Sep 28, 2018 1:07 pm
I was under the impression that this was his basic advice to the average investor.
You are not alone. His suggestion has been taken out of context and "the Warren Buffett portfolio" has taken on a life of its own.

I'm not saying the idea is a bad one. It's not. But investing is not a one size fits all type of thing. A 90/10 allocation is right for some people but incredibly wrong for many more. The lack of foreign stocks suits some people and but a portfolio without foreign stocks would be considered incomplete by others.

There simply is no one right portfolio for average investors.

What's "right about it?" It's simple. It's low cost. For what it includes, it is well diversified. All of these are sound Boglehead principles.

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Re: Warren Buffet Portfolio Critique

Post by SillyRabbit » Fri Sep 28, 2018 1:56 pm

stemikger wrote:
Fri Sep 28, 2018 2:32 am
billfromct wrote:
Fri Sep 28, 2018 2:16 am
According to "the Google", Warren Buffett is worth about $86b or $87b. Let's make it conservative & say $80b.

So his legacy to his wife (assuming no inheritance taxes) would be $8.0b Treasuries/$72.0b stocks.

I believe his wife is about 72 years old now.

I guess she would be able to survive on $8.0b for the next 15-20 years if the stock market tanked.

bill
Yes, but his wife is not getting any of that, it is already pledged to the Bill and Melinda Gates Foundation. He has often said he is leaving his kids enough to do whatever they want, but not enough to do nothing. Many have guessed he is leaving his wife about 20 million. Nothing to sneeze at, but not Berkshire billions.
Just curious, can he make this decision on his own or does his wife also get a say?

bondsr4me
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Re: Warren Buffet Portfolio Critique

Post by bondsr4me » Fri Sep 28, 2018 2:01 pm

Let me say here and now: No one has more respect and admiration for Warren Buffett than I.

But, I do not follow his investment recommendations.
What's good for me is good for ME and no one else.

I would encourage everyone to make their own investment decisions based on their own risk tolerance, investment goals, time horizons.

Have a great weekend,

Don

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Re: Warren Buffet Portfolio Critique

Post by ThrustVectoring » Fri Sep 28, 2018 3:22 pm

DWesterb2iz2 wrote:
Fri Sep 28, 2018 1:22 pm
I’ve posted here that a wealthy guy told me he advises “two years’ expenses in cash and the rest in the S&P 500”. It’s what he does, he says. Here’s that discussion:

viewtopic.php?f=10&t=247287
It's a really solid strategy. Two years of cash buffer is plenty to figure out how to cut expenses, change careers, or otherwise figure out how to deal with any interruptions to your income. And since he can afford to never touch the rest of his money, he can afford to put it 100% into stocks.

It's roughly what I do, except with a smaller cash buffer. If I owned a house or was married with kids I'd definitely up the cash buffer to two years.

And, like, in general, it's a great strategy for accumulating large quantities of wealth. If you're more interested in maximizing the likelihood of having at least $X ten years from now, you should definitely have a heftier bond allocation. But if you're thinking very long-term and saving more than you'd be able to reasonably spend on yourself, it's fantastic as is.
Current portfolio: 60% VTI / 40% VXUS

Aeiouoiea
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Re: Warren Buffet Portfolio Critique

Post by Aeiouoiea » Fri Sep 28, 2018 3:48 pm

I can see the strategy behind this. Focusing on one equity-fund gives it more momentum (compounding potential) and keeps expenses down.

WhiteMaxima
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Re: Warren Buffet Portfolio Critique

Post by WhiteMaxima » Fri Sep 28, 2018 4:28 pm

S&P are mostly large cap blend. there are dividend paying stock fund. BND also are paying interest. On the other hand BRKA/B don't pay dividend. So BRKA/B are more tax efficient. Let's say Warren bought KO and hold it for 10 years. KO pays 2% dividend. After 10 years, Warren still has KO stock (value increase x times) plus 20% in cash after so many years. Then stock market crashes , KO lost some value but still has huge gain after 10 years of growth. However, one bank let's say BAC lost most of it's value due to sub-prime loan. BAC stock price drops below it's book value and Warren bought it 50C for the dollar. That't how Warren's fund makes money. While mutual fund investor receive dividend and paying tax, Warren's fund preserve a lot of cash and wait for value investment.

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oldzey
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Re: Warren Buffet Portfolio Critique

Post by oldzey » Fri Sep 28, 2018 4:40 pm

Warren Buffett's heirs could live off the 10% bonds alone following his untimely demise.

For most of the rest of us non-billionaires, age will often factor into our asset allocation decision.

According to Charles Ellis, if you're 40-50 years old, then Mr. Buffett's asset allocation of 90:10 equities:bonds would be valid.

Charles Ellis' suggested portfolios by age:
• Under 40 years old -- 100% in stocks
• 40 to 50 years old -- 90% in stocks; 10% in bonds
• 50 to 60 years old -- 80% in stocks; 20% in bonds
• 60 to 70 years old -- 60% in stocks; 40% in bonds
• 70 to 80 years old -- 50% in stocks; 50% in bonds

I'm 50 years old and my AA is currently at 80:20 equities:bonds
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

Boglegrappler
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Re: Warren Buffet Portfolio Critique

Post by Boglegrappler » Fri Sep 28, 2018 4:56 pm

I’ve posted here that a wealthy guy told me he advises “two years’ expenses in cash and the rest in the S&P 500”. It’s what he does, he says. Here’s that discussion:
That's an interesting way to look at it. How that would translate to the equity/fixed income allocation really depends on what the person's level of savings is at a given age.

In the Buffett example of 90/10, it would mean that your total assets would need to be at least twenty times your annual out-of-pocket expenses.

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oldzey
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Re: Warren Buffet Portfolio Critique

Post by oldzey » Fri Sep 28, 2018 4:59 pm

Warren Buffett has pledged to give away 99% of his wealth, according to his statement at The Giving Pledge.

Mr. Buffett "...has a net worth of US $90.2 billion as of September 26, 2018, making him the third-wealthiest person in the world." https://en.wikipedia.org/wiki/Warren_Buffett

So, he plans to keep 1% of $90.2B... $90.2B x .01 = $902M

$902M x .90 = $811.8M in S&P 500 Vanguard Index Fund (90%)
$902M x .10 = $90.2M in Short-term Government Bonds (10%)

“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). 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.” – Warren Buffett, page 20 - 2013 Letter to Berkshire Shareholders
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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stemikger
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Re: Warren Buffet Portfolio Critique

Post by stemikger » Fri Sep 28, 2018 5:26 pm

SillyRabbit wrote:
Fri Sep 28, 2018 1:56 pm
stemikger wrote:
Fri Sep 28, 2018 2:32 am
billfromct wrote:
Fri Sep 28, 2018 2:16 am
According to "the Google", Warren Buffett is worth about $86b or $87b. Let's make it conservative & say $80b.

So his legacy to his wife (assuming no inheritance taxes) would be $8.0b Treasuries/$72.0b stocks.

I believe his wife is about 72 years old now.

I guess she would be able to survive on $8.0b for the next 15-20 years if the stock market tanked.

bill
Yes, but his wife is not getting any of that, it is already pledged to the Bill and Melinda Gates Foundation. He has often said he is leaving his kids enough to do whatever they want, but not enough to do nothing. Many have guessed he is leaving his wife about 20 million. Nothing to sneeze at, but not Berkshire billions.
Just curious, can he make this decision on his own or does his wife also get a say?
Over the years, from what I read about Astrid, she could give a hoot about money and status and will not require much. She is a free spirit from San Francisco who befriended Susie Buffett (Warren's first wife) many decades ago. Warren and Susie were living separate lives at the time because Warren was getting more and more famous and Susie did not want to live that life and she could care less about wealth. Susie's passion was always about social causes and she had a love of singing which she was doing on the Cabaret circuit in San Fran when she met Astrid. She never stopped loving Warren, but she could not live that life and they still talked daily and took vacations together.

Over the years she knew Warren had a hard time doing things most people don't even think about (i.e. anything domesticated) and she knew he needed help. At this point her and Astrid had a very deep connection and she asked Astrid if she would live with Warren and take care of him. So at this point Warren kind of had two strong women in his life and they lived like that until Susie's death.

Warren's kids love Astrid and from what I read, she is very much like Susan when it comes to making the world a better place through social causes. She loves to garden and live a simple life. So in answering your question, Warren is setting it up like this because it will require her to do nothing other then get a check every year.
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JoMoney
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Re: Warren Buffet Portfolio Critique

Post by JoMoney » Fri Sep 28, 2018 5:49 pm

Buffett did mention that the bequest to his wife would be setup in trust, I wonder what his trustee will charge for managing this low maintenance portfolio.
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NoHeat
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Re: Warren Buffet Portfolio Critique

Post by NoHeat » Fri Sep 28, 2018 8:19 pm

Daily expenses for his wife will drop at least $2.61 after Warren passes.

https://www.cnbc.com/2018/04/18/warren- ... nt-17.html

It's a classic story of frugality. Excerpt:

"I tell my wife, as I shave in the morning, I say, 'Either $2.61, $2.95 or $3.17.' And she puts that amount in the little cup by me here [in the car]," he explains in the HBO documentary, "Becoming Warren Buffett."

Each amount corresponds to one of his three go-to breakfast items.

"When I'm not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke," he tells the documentary director Peter Kunhardt in the McDonald's drive-through. "$3.17 is a bacon, egg and cheese biscuit, but the market's down this morning, so I'll pass up the $3.17 and go with the $2.95."

3funder
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Re: Warren Buffet Portfolio Critique

Post by 3funder » Sat Sep 29, 2018 12:43 pm

If you're young, it's a fine portfolio. It's simple and cheap. One could do a whole lot worse than this.

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Re: Warren Buffet Portfolio Critique

Post by ruralavalon » Sat Sep 29, 2018 2:01 pm

Aeiouoiea wrote:
Thu Sep 27, 2018 6:56 pm
I think that is also the advice he gave to Lebron James...
We aren't as rich as Warren Buffett, or as rich as LeBron James either.

We are both 73 years old, so an asset allocation of 90/10 is too risky for us. Our asset allocation is 50/50.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Warren Buffet Portfolio Critique

Post by Nissanzx1 » Sat Sep 29, 2018 10:08 pm

stemikger wrote:
Fri Sep 28, 2018 2:32 am
billfromct wrote:
Fri Sep 28, 2018 2:16 am
According to "the Google", Warren Buffett is worth about $86b or $87b. Let's make it conservative & say $80b.

So his legacy to his wife (assuming no inheritance taxes) would be $8.0b Treasuries/$72.0b stocks.

I believe his wife is about 72 years old now.

I guess she would be able to survive on $8.0b for the next 15-20 years if the stock market tanked.

bill
Yes, but his wife is not getting any of that, it is already pledged to the Bill and Melinda Gates Foundation. He has often said he is leaving his kids enough to do whatever they want, but not enough to do nothing. Many have guessed he is leaving his wife about 20 million. Nothing to sneeze at, but not Berkshire billions.
+1. Anybody who is a Buffett fan will know that he wants to leave about 98% of his wealth back into society. He pledged many of his Berkshire shares after the death of his first wife to the Gates Foundation.

2015
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Re: Warren Buffet Portfolio Critique

Post by 2015 » Sat Sep 29, 2018 10:34 pm

retiredjg wrote:
Thu Sep 27, 2018 6:51 pm
The "advice" was for one portfolio - his own estate after he dies. It has nothing to do with anyone else.

It certainly is not "advice" for anyone other than the people handling his estate.

I doubt any of us know enough to critique whether it is appropriate for his estate or not. Seems ok to me though. :happy
This.
Buffet never made any "suggestion" of the kind for the general public, and to imply so just adds more to the ongoing misinformation, disinformation, and false interpretations of the man.

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JoMoney
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Re: Warren Buffet Portfolio Critique

Post by JoMoney » Sat Sep 29, 2018 10:57 pm

2015 wrote:
Sat Sep 29, 2018 10:34 pm
retiredjg wrote:
Thu Sep 27, 2018 6:51 pm
The "advice" was for one portfolio - his own estate after he dies. It has nothing to do with anyone else.

It certainly is not "advice" for anyone other than the people handling his estate.

I doubt any of us know enough to critique whether it is appropriate for his estate or not. Seems ok to me though. :happy
This.
Buffet never made any "suggestion" of the kind for the general public, and to imply so just adds more to the ongoing misinformation, disinformation, and false interpretations of the man.
Not only has he repeatedly given that advice when asked on TV going out to the general public, and to specific individuals asking questions at annual meetings, and in his 2013 letter where he explicitly addresses non-professional investors and followed up with saying, "What I advise here is essentially identical to certain instructions I’ve laid out in my will."
It's mind boggling to imagine how you think he's not addressing the general public (or at least those who listen to his advice).
"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: Warren Buffet Portfolio Critique

Post by Caduceus » Sun Sep 30, 2018 4:37 am

Buffett has addressed this question in the Q&A portion of his shareholder meetings before, so the answers to some of the questions are:

Yes, he means this as general advice. He says that for "know-nothing" investors (people who are not trying to actively pick stocks), picking a diversified U.S. index fund with some amount in bond/cash equivalents is the way to go. This is general advice, not just advice for his wife. Go look at the transcripts of his shareholder meetings. He has addressed this many times.

When asked why there's no international component, Buffett usually points out two things. First, that even U.S. companies earn a large proportion of their earnings overseas. The example he typically uses is Coca-Cola. Second, that the U.S. has an advantage in terms of its culture, its legal regime, its ability unleash entrepreneurs, etc. So if he had to plan "forever", the U.S. is what he would choose.

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stemikger
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Re: Warren Buffet Portfolio Critique

Post by stemikger » Sun Sep 30, 2018 6:38 am

Caduceus wrote:
Sun Sep 30, 2018 4:37 am
Buffett has addressed this question in the Q&A portion of his shareholder meetings before, so the answers to some of the questions are:

Yes, he means this as general advice. He says that for "know-nothing" investors (people who are not trying to actively pick stocks), picking a diversified U.S. index fund with some amount in bond/cash equivalents is the way to go. This is general advice, not just advice for his wife. Go look at the transcripts of his shareholder meetings. He has addressed this many times.

When asked why there's no international component, Buffett usually points out two things. First, that even U.S. companies earn a large proportion of their earnings overseas. The example he typically uses is Coca-Cola. Second, that the U.S. has an advantage in terms of its culture, its legal regime, its ability unleash entrepreneurs, etc. So if he had to plan "forever", the U.S. is what he would choose.
+1

Thanks for this. I get so frustrated when people who don't know Buffett say this is only advice for his wife. He has literally been giving this advice for over a decade and recently has been more vocal about it in interviews and at the Berkshire Hathaway Meeting. I saw him being interviewed by Becky Quick from CNBC and when she asked him about this index investing advice, he said he does not speak in riddles and there are no hidden messages. He tells everyone of his family members who are of modest means and even some of his celebrity friends who aren't to simply hold enough cash to feel secure and put the rest in a low cost index funds (he also throws out owning a farm or real estate as an option). He gives this same advice to young and old alike. This is the advice that he gives those who do not want to be active investors for one reason or another. He says the long term results from doing this will be better than most money managers and endowments alike. Not sure why so many people want to change the words that are coming out of his mouth.
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Re: Warren Buffet Portfolio Critique

Post by retiredjg » Sun Sep 30, 2018 8:48 am

stemikger wrote:
Sun Sep 30, 2018 6:38 am
Thanks for this. I get so frustrated when people who don't know Buffett say this is only advice for his wife.
I guess one of those would be me. :happy

I agree that this quote from the stockholders letter linked above is clearly general advice for people to invest in the 500 index.
  • "The goal of the non-professional 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."

A little bit after that, he says that his advice for the money left to his wife is to invest it in 90% 500 index and 10% in short term government bonds.

This is not the same thing as saying "my suggestion is for people to invest in 90% 500 index and 10% short term government bonds".

That's my quibble - that people believe that since 90/10 was suggested for his wife that WB is saying 90/10 is good for everybody. I seriously doubt that is what he has said or what he meant, but that is what has emerged as the "Warren Buffett Portfolio"....as evidenced in this and other threads.

I've not listened to podcasts or interviews or read other stockholder letters. If you tell me he has said "most people should just invest in 90% 500 Index and 10% short term bonds", I'll believe you and change my future comments....but I will also be very surprised. :D

It does not surprise me at all that you report he has said something like "people should just use the 500 index and an appropriate amount of fixed income assets".

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Re: Warren Buffet Portfolio Critique

Post by knpstr » Sun Sep 30, 2018 8:54 am

Aeiouoiea wrote:
Thu Sep 27, 2018 6:20 pm
What do y'all make of the advice Warren Buffets suggests?

90%-- S&P 500 Index Fund Admiral Shares (VFIAX)
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)
It's a great portfolio! Contrary to opinions here, Buffett suggests that this is a great allocation for anyone to use. He added the comment that indeed his personal portfolio is set to be invested in this way for his wife was to show he puts his money where his mouth is. Most people are over-weighted in bonds at too young of an age because they think they are supposed to or they think it is "less risky". Of course, as Buffett says, for long-term investors bonds are the "far riskier" investment.
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stemikger
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Re: Warren Buffet Portfolio Critique

Post by stemikger » Sun Sep 30, 2018 9:30 am

retiredjg wrote:
Sun Sep 30, 2018 8:48 am
stemikger wrote:
Sun Sep 30, 2018 6:38 am
Thanks for this. I get so frustrated when people who don't know Buffett say this is only advice for his wife.
I guess one of those would be me. :happy

I agree that this quote from the stockholders letter linked above is clearly general advice for people to invest in the 500 index.
  • "The goal of the non-professional 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."

A little bit after that, he says that his advice for the money left to his wife is to invest it in 90% 500 index and 10% in short term government bonds.

This is not the same thing as saying "my suggestion is for people to invest in 90% 500 index and 10% short term government bonds".

That's my quibble - that people believe that since 90/10 was suggested for his wife that WB is saying 90/10 is good for everybody. I seriously doubt that is what he has said or what he meant, but that is what has emerged as the "Warren Buffett Portfolio"....as evidenced in this and other threads.

I've not listened to podcasts or interviews or read other stockholder letters. If you tell me he has said "most people should just invest in 90% 500 Index and 10% short term bonds", I'll believe you and change my future comments....but I will also be very surprised. :D

It does not surprise me at all that you report he has said something like "people should just use the 500 index and an appropriate amount of fixed income assets".
I see your point. I will post this interview below and you can decide if you think he is suggesting bonds as part of your asset allocation or just hold enough cash to feel secure and put the rest in stocks.

Start listening at 1:18.

https://www.youtube.com/watch?v=1N3g47P-iRc

For the record, I hold the Vanguard Balanced Index 60/40 and intend to hold it for life.

Here is another one:

Starts at 1:59

https://www.youtube.com/watch?v=10QoUi2PmNs

And more. There are dozens like this, I also could go into the Berkshire Annual Letter.

https://www.youtube.com/watch?v=s264AElER7k

There is one where he does say this advice is for all ages, when I find it I will post it.

Again, I still take Jack's advice with the 60/40 but Warren did say this for all people. Whether it is right for you, is your decision.
Last edited by stemikger on Sun Sep 30, 2018 9:43 am, edited 2 times in total.
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Re: Warren Buffet Portfolio Critique

Post by averagedude » Sun Sep 30, 2018 9:33 am

I think a 90/10 asset allocation for a billionaire sounds reasonable to me. I see no issues of him running out of money. He should feel confident that he can continue to drive his 4 year old car to McDonalds and buy his three dollar breakfast.

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Re: Warren Buffet Portfolio Critique

Post by 2015 » Sun Sep 30, 2018 9:47 am

JoMoney wrote:
Sat Sep 29, 2018 10:57 pm
2015 wrote:
Sat Sep 29, 2018 10:34 pm
retiredjg wrote:
Thu Sep 27, 2018 6:51 pm
The "advice" was for one portfolio - his own estate after he dies. It has nothing to do with anyone else.

It certainly is not "advice" for anyone other than the people handling his estate.

I doubt any of us know enough to critique whether it is appropriate for his estate or not. Seems ok to me though. :happy
This.
Buffet never made any "suggestion" of the kind for the general public, and to imply so just adds more to the ongoing misinformation, disinformation, and false interpretations of the man.
Not only has he repeatedly given that advice when asked on TV going out to the general public, and to specific individuals asking questions at annual meetings, and in his 2013 letter where he explicitly addresses non-professional investors and followed up with saying, "What I advise here is essentially identical to certain instructions I’ve laid out in my will."
It's mind boggling to imagine how you think he's not addressing the general public (or at least those who listen to his advice).
It's not mind boggling at all. You have cherry picked a single paragraph and taken those words out of context. Read the five paragraphs preceding the one you picked and you will see in context he is advocating passive versus active investing. Even in the paragraph you cherry pick, he uses the word "essentially", as in "What I advise here is essentially identical to certain
instructions I’ve laid out in my will." The key word is essentially. I don't at all take this to mean he is advising all investors to be at 90% stocks, regardless of their individual situation or circumstances. The man is just not stupid enough to provide such blanket advice.

Edited to Add: I'll take this a step further as it is too excellent of an example of the umbrance I take with many threads on the forum which wallow strictly in the areas of personal finance, economics, or investing. By doing so, one fails to overcome behavioral biases of many types and sees possible actions through a very narrow lens. I'm familiar with Buffet's overall thinking because I have read his partner Charlie Munger, and specifically what Munger has to say regarding human thinking outside personal finance, economics, and investing. If one wallows in personal finance alone one will naturally take anything Buffet has to say quite literally (happens all the time). Reading outside personal finance (Munger for example, on the thinking behind Berkshire Hathaway's actions) an entirely different light is cast.

The reason so many threads here spend pages doing the cha-cha on the head of a finance needle is because it's much easier to do so without forcing oneself to think outside of finance (which in fact circles back to inform finance).
Last edited by 2015 on Sun Sep 30, 2018 10:14 am, edited 1 time in total.

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Re: Warren Buffet Portfolio Critique

Post by retiredjg » Sun Sep 30, 2018 10:08 am

stemikger wrote:
Sun Sep 30, 2018 9:30 am
I see your point. I will post this interview below and you can decide if you think he is suggesting bonds as part of your asset allocation or just hold enough cash to feel secure and put the rest in stocks.
Thanks for the links.

When I said "fixed income assets" I meant that to include cash.

But yes, he does seem to like cash more than bonds, at least presently. In the one link he says that cash is the worst investment you can have so perhaps he considers "short term government bonds" to be pretty close to cash and maybe the least worst choice for money that is not in stocks.

There is one where he does say this advice is for all ages, when I find it I will post it.
No need. I believe what you have said.

I just don't think the advice includes the 90/10 asset allocation that people have latched onto and inserted so firmly into the so called "Warren Buffett Portfolio". I still believe that part of the advice was specifically for his wife's situation. Of course there are many other situations where it would also be appropriate.

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Re: Warren Buffet Portfolio Critique

Post by ruralavalon » Sun Sep 30, 2018 10:14 am

stemikger wrote:
Sun Sep 30, 2018 9:30 am
retiredjg wrote:
Sun Sep 30, 2018 8:48 am
stemikger wrote:
Sun Sep 30, 2018 6:38 am
Thanks for this. I get so frustrated when people who don't know Buffett say this is only advice for his wife.
I guess one of those would be me. :happy

I agree that this quote from the stockholders letter linked above is clearly general advice for people to invest in the 500 index.
  • "The goal of the non-professional 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."

A little bit after that, he says that his advice for the money left to his wife is to invest it in 90% 500 index and 10% in short term government bonds.

This is not the same thing as saying "my suggestion is for people to invest in 90% 500 index and 10% short term government bonds".

That's my quibble - that people believe that since 90/10 was suggested for his wife that WB is saying 90/10 is good for everybody. I seriously doubt that is what he has said or what he meant, but that is what has emerged as the "Warren Buffett Portfolio"....as evidenced in this and other threads.

I've not listened to podcasts or interviews or read other stockholder letters. If you tell me he has said "most people should just invest in 90% 500 Index and 10% short term bonds", I'll believe you and change my future comments....but I will also be very surprised. :D

It does not surprise me at all that you report he has said something like "people should just use the 500 index and an appropriate amount of fixed income assets".
I see your point. I will post this interview below and you can decide if you think he is suggesting bonds as part of your asset allocation or just hold enough cash to feel secure and put the rest in stocks.

Start listening at 1:18.

https://www.youtube.com/watch?v=1N3g47P-iRc

For the record, I hold the Vanguard Balanced Index 60/40 and intend to hold it for life.

Here is another one:

Starts at 1:59

https://www.youtube.com/watch?v=10QoUi2PmNs

And more. There are dozens like this, I also could go into the Berkshire Annual Letter.

https://www.youtube.com/watch?v=s264AElER7k

There is one where he does say this advice is for all ages, when I find it I will post it.

Again, I still take Jack's advice with the 60/40 but Warren did say this for all people. Whether it is right for you, is your decision.
Thanks for the links. I will be interested in what he might say for people of retirement age.

We are age 73, our asset allocation is 50/50. The bond allocation is enough to cover about 15 years of our living expenses.
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Re: Warren Buffet Portfolio Critique

Post by vineviz » Sun Sep 30, 2018 10:27 am

knpstr wrote:
Sun Sep 30, 2018 8:54 am
Aeiouoiea wrote:
Thu Sep 27, 2018 6:20 pm
What do y'all make of the advice Warren Buffets suggests?

90%-- S&P 500 Index Fund Admiral Shares (VFIAX)
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)
It's a great portfolio!
It's a good portfolio. There are many other portfolios that are at least as good.

70%-- Vanguard Small-Cap Value Index Fund Admiral (VSIAX)
30%-- Vanguard Long-Term Treasury Fund Admiral Shares (VUSUX)


55%-- Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX)
45%-- Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)


85%-- Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
15%-- Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)

What objective criteria could anyone use to demonstrate that these alternatives to the "Buffet Portfolio" are better or worse?
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Re: Warren Buffet Portfolio Critique

Post by retiredjg » Sun Sep 30, 2018 10:40 am

ruralavalon wrote:
Sun Sep 30, 2018 10:14 am
Thanks for the links. I will be interested in what he might say for people of retirement age.

We are age 73, our asset allocation is 50/50. The bond allocation is enough to cover about 15 years of our living expenses.
He does keep referring to "a comfortable amount of cash" or similar phrases. I guess if you consider your 50% bonds to be equivalent to a comfortable amount of cash, it must meet the WB criteria.

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JoMoney
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Re: Warren Buffet Portfolio Critique

Post by JoMoney » Sun Sep 30, 2018 3:01 pm

2015 wrote:
Sun Sep 30, 2018 9:47 am
JoMoney wrote:
Sat Sep 29, 2018 10:57 pm
2015 wrote:
Sat Sep 29, 2018 10:34 pm
retiredjg wrote:
Thu Sep 27, 2018 6:51 pm
The "advice" was for one portfolio - his own estate after he dies. It has nothing to do with anyone else.

It certainly is not "advice" for anyone other than the people handling his estate.

I doubt any of us know enough to critique whether it is appropriate for his estate or not. Seems ok to me though. :happy
This.
Buffet never made any "suggestion" of the kind for the general public, and to imply so just adds more to the ongoing misinformation, disinformation, and false interpretations of the man.
Not only has he repeatedly given that advice when asked on TV going out to the general public, and to specific individuals asking questions at annual meetings, and in his 2013 letter where he explicitly addresses non-professional investors and followed up with saying, "What I advise here is essentially identical to certain instructions I’ve laid out in my will."
It's mind boggling to imagine how you think he's not addressing the general public (or at least those who listen to his advice).
It's not mind boggling at all. You have cherry picked a single paragraph and taken those words out of context. Read the five paragraphs preceding the one you picked and you will see in context he is advocating passive versus active investing. Even in the paragraph you cherry pick, he uses the word "essentially", as in "What I advise here is essentially identical to certain
instructions I’ve laid out in my will." The key word is essentially. I don't at all take this to mean he is advising all investors to be at 90% stocks, regardless of their individual situation or circumstances. The man is just not stupid enough to provide such blanket advice.

Edited to Add: I'll take this a step further as it is too excellent of an example of the umbrance I take with many threads on the forum which wallow strictly in the areas of personal finance, economics, or investing. By doing so, one fails to overcome behavioral biases of many types and sees possible actions through a very narrow lens. I'm familiar with Buffet's overall thinking because I have read his partner Charlie Munger, and specifically what Munger has to say regarding human thinking outside personal finance, economics, and investing. If one wallows in personal finance alone one will naturally take anything Buffet has to say quite literally (happens all the time). Reading outside personal finance (Munger for example, on the thinking behind Berkshire Hathaway's actions) an entirely different light is cast.

The reason so many threads here spend pages doing the cha-cha on the head of a finance needle is because it's much easier to do so without forcing oneself to think outside of finance (which in fact circles back to inform finance).
I think we may be in agreement then, but you have changed your tune from what you initially said, that he "never made any "suggestion" of the kind ", which he clearly did... but you have somehow twisted to an absurd absolute, so that you can somehow take "umbrance" with anyone who thinks the example he gave is fine.
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Re: Warren Buffet Portfolio Critique

Post by knpstr » Sun Sep 30, 2018 4:22 pm

vineviz wrote:
Sun Sep 30, 2018 10:27 am
knpstr wrote:
Sun Sep 30, 2018 8:54 am
Aeiouoiea wrote:
Thu Sep 27, 2018 6:20 pm
What do y'all make of the advice Warren Buffets suggests?

90%-- S&P 500 Index Fund Admiral Shares (VFIAX)
10%-- Short-Term Treasury Fund Admiral Shares (VFIRX)
It's a great portfolio!
There are many other portfolios that are at least as good.
What are your reasons for choosing those portfolios saying they will likely return the same or higher return (at least as good) as the 90/10 portfolio?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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