Leon Cooperman giving the same advice as Warren

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stemikger
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Leon Cooperman giving the same advice as Warren

Post by stemikger »

A few months ago I asked Vanguard the following question on Facebook.

Warren Buffett is telling the average Jane and Joe to say out of bonds and keep enough in cash to stay secure and put the rest in a low cost index fund that buys America. His particular choice is the Vanguard Index 500.

Today on CNBC, Leon Cooperman gave the same advice. He said bonds of all types are a terrible investment and one should hold enough cash and the rest in stocks.

Vanguard's response to my question was bonds are still a good diversifier, but they never said a good investment.

Does it make you wonder why two of these giants would be wrong and if Vanguard has too much of an vested interest to change their view on bonds.

I know this topic has been talked about a lot, but do you think it's time for a new plan in order to have a meaningful retirement? Even Jack has been saying more and more that one should count social security as a fixed income portion of a portfolio.
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Re: Leon Cooperman giving the same advice as Warren

Post by adamthesmythe »

> Vanguard has too much of an vested interest to change their view on bonds.

You mean that they have a vested interest in recommending against cash?
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Re: Leon Cooperman giving the same advice as Warren

Post by Snowjob »

Vanguard has vested interest in not telling the public what asset class to avoid and which to buy to any extent beyond the generally accepted academic literature. As long as they don't make a prediction, they can never be wrong. Their goal is to gather as many assets as possible.

I have been wrong on bonds for 3 years now for what its worth.
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Re: Leon Cooperman giving the same advice as Warren

Post by Grt2bOutdoors »

Cash = Fiat money
Bonds = are promissory notes to pay back borrowed money at a set date in time
Equities = claims on illusory profits.

One can hold both cash and short-term fixed bonds and equities to realize the benefits of diversification and capital growth.
Bonds should never be thought of as a huge money-maker, rather they are a store of already realized value and if purchased at distressed prices, can be an investment. In 2009, when they were throwing the baby out with the bath water, a number of corporate issues that were secured by underlying investments were absolute "steals". Today, they are fully priced. Does that make them a poor investment? Yes because growth is virtually non-existent and limited. What appeals to equity buyers is unlimited upside with known downside. You purchase an equity for $50 per share, if the company goes bust you lose $50, but if the company continually does well your investment could be worth multiples of what you paid for it. What doesn't appeal to investors - no upside and no growth, sounds like fixed income fits that bill to a T. Now, don't be misled, both Warren and Leon are both holding fixed income instruments that are of high quality and can be easily liquidated for full or premium valuations, but they are not an investment, they are what we call a "temporary holding bin".

You'll realize the worth of "cash and bonds" when you have none and need to borrow some. Which do you prefer more, 75% equities and 25% cash yielding nil or 75% equities and 25% bonds yielding 6%? If equities go to zero, those holding those bonds will still be able to pay the bills a lot longer than those holding cash with a yield of zero.
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Re: Leon Cooperman giving the same advice as Warren

Post by cfs »

From my side of the keyboard.

On my side of the keyboard the bonds are included as part of our balanced funds, but there is plenty of advise out there against bond funds, here is this article from Money on "Why I Won’t Own Bond Funds in My Retirement Portfolio."

I would love to find a bond fund that could be both a safe haven and could provide steady returns, but I just don’t think that exists anymore.

More here: https://time.com/money/3524487/retireme ... ahoo_money
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Re: Leon Cooperman giving the same advice as Warren

Post by JoMoney »

LINK: http://www.cnbc.com/id/102102682

I'm not / wasn't familiar with Leon Cooperman, I did enjoy hearing his perspective.
"We feel pretty comfortable ... I've been far too cautious on bonds, but believe me they make no sense at this level of return."

That quote wasn't in the video snip, but is in the text... another interesting quote from the video though:
"...Don't fear interest rates rising, fear if they don't rise..."
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Re: Leon Cooperman giving the same advice as Warren

Post by richard »

[quote="JoMoney"<> "...Don't fear interest rates rising, fear if they don't rise..."[/quote]
If you're a long-term investor, a collapse in bond prices would be excellent news.

If rates stay low, you get low returns.

If rates rise, principal value goes down, but the increased interest makes up for it after a while, then you get the benefits of a higher returns going forward.

If you're a short term investor, it's different, but in that case neither stocks nor more than short term bonds seems appropriate.

Continued low rates would most likely be a sign of a slow economy, which is not good for most anyone.
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Re: Leon Cooperman giving the same advice as Warren

Post by nisiprius »

stemikger wrote:...Does it make you wonder why two of these giants would be wrong...
No. Particularly if you state their advice as "stay out of bonds." You don't, you go beyond that, but the point is that the details matter.

Where their opinions are of value is when you look closely a) what the advice actually is, in detail, and what their reasoning actually is... and figure out whether it applies to you.

Now, you say "Warren Buffett is telling the average Jane and Joe to say out of bonds and keep enough in cash to stay secure and put the rest in a low cost index fund that buys America. His particular choice is the Vanguard Index 500." So here are several pieces of advice, which, relative to standard Boglehead suggestions, can be summarized thus:

"Do what Bogleheads recommend with these differences:
--Use cash instead of bonds
--Use 100% U.S. stocks instead of a mix of U.S. and 20%-50% international
--Use 100% large-cap stocks instead of a total market fund or using a tilt."

Let's not worry about the second and third points except to note that they are there. "Cash instead of bonds" is a perfectly credible piece of advice. What doesn't make sense is suggesting that any of these variations on a theme are terribly important or are going to make a huge difference. Common sense says that cash is going to be safer AND have lower return than bonds. Common sense also says that if your portfolio is, let's say 50% stocks, that's a large amount of risk, and you're not going to cut your risk that much by putting the other half into cash instead of bonds.

Also, when listening to bond-bashing, you want to be careful to listen to what bonds are being bashed, because there are a lot of different kinds. There is way too much implied reasoning of the form

If I can convince you that individual Treasury bonds ("bonds" means 20 or 30 year maturity) are lousy short-term investments, THEN
you must agree that intermediate-term bond funds like Total Bond, average 8-year maturity, must be a lousy long-term investments.

The last time I paid attention to what Warren Buffett was saying about "bonds," he was actually quite careful to specify that he was talking about nominal bonds. He didn't mention TIPS by name. The gist of his talk was that "currency-based investments" were dangerous because of inflation. That warning applies less to shorter-term bonds, because there is let chance for inflation to do its bad work before they mature, and they will be replaced by new bonds that have higher interest. And it does not apply at all to TIPS.

Warren Buffett is certainly a giant. Who is Leon Cooperman? I don't know the name. Is he a giant too, and what did he say, exactly? I am not an expert on experts but I haven't heard of him. Now, even a statement like "bonds of all types are a terrible investment" needs to be clarified, because without numbers you don't know what he means. To him, if investment A earns 2% and investment B earns 2.3%, that may make investment A a "terrible investment." Or, he may be pointing out that bonds have low return, while evading the question of whether you can get higher returns without commensurately higher risk.

Or, he may be stating an opinion that as short-term speculative investments, there are only rare moments when he ever sees opportunity in bonds and this is not one of them. Maybe he's someone who tries to do things like jump into bonds briefly during "flights to safety" and then jump out again after making a quick killing.

Another point, to which I don't know the answer, is this: has there been a time when either of these gentlemen were telling ordinary investors to invest part of their portfolio in bonds? Just as there are permabulls and permabears, there are a fair number of people who never like bonds, and the only thing that changes are their stated reasons. When they are low, they point out that bonds have been racking up losses, and when they are high, they point out that yields are low.

Added: Leon Cooperman is a hedge fund manager with a net worth of $3.9 billion. His firm, Omega Advisers Inc. posted net returns of just over 2% in the first half of 2014. During the first half of 2014, my Vanguard account posted net returns of just under 4%. Shrug.
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Re: Leon Cooperman giving the same advice as Warren

Post by Yesterdaysnews »

I am not a big bonds guy either. If your time horizon is 15 to 20 years I would do 100% stocks. under 5 I would consider tax free munis to live off interest.
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Re: Leon Cooperman giving the same advice as Warren

Post by Dale_G »

richard wrote: ... If you're a long-term investor, a collapse in bond prices would be excellent news.

If rates stay low, you get low returns.

If rates rise, principal value goes down, but the increased interest makes up for it after a while, then you get the benefits of a higher returns going forward. ...
I see this kind of comment all of the time, but without any caveats. If interest rates rise due to inflation, (which is one very likely case) the investor may never be made whole.

Let's take a simple example. An investor has $100,000 invested in Total Bond Market which has an sec yield of 2.07% - slightly above the current rate of inflation of about 2%. Tomorrow, inflation spikes at 7%. TBM will drop to about 75% of It's previous NAV, the fund will initially thereafter pay about 2.8%.

Thereafter, inflation runs at zero, and after about 5 years, the Nav + reinvested dividends = $100,000. Great, but even if the dividends were reinvested instead of being spent, the buying power of the $100,000 five years later is 5% less than at the time inflation spiked. You have lost 5% of your buying power.

Equities or bonds, it doesn't matter much. Those fortunate enough to have a 1MM portfolio should recognized that 3% inflation reduces their future buying power by $30,000. 4% inflation = $40,000. Borrowers are delighted of course, but I am a lender.

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Re: Leon Cooperman giving the same advice as Warren

Post by Stryker »

I was reading about Leon Cooperman well over twenty years ago in the financial magazines, so he's not exactly a new name to me. Just because an expert recommends something doesn't mean I follow his or her advice. I'll just listen, and then usually just go on in the portfolio with what I already have. Right now for fixed income it's Canadian real return bonds I bought many years ago and a short term bond index ETF I purchased maybe two or three years ago. Since I've been retired for about eight years now, no plans to change my 40% bond allocation any time soon.
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Re: Leon Cooperman giving the same advice as Warren

Post by richard »

Dale_G wrote:
richard wrote: ... If you're a long-term investor, a collapse in bond prices would be excellent news.

If rates stay low, you get low returns.

If rates rise, principal value goes down, but the increased interest makes up for it after a while, then you get the benefits of a higher returns going forward. ...
I see this kind of comment all of the time, but without any caveats. If interest rates rise due to inflation, (which is one very likely case) the investor may never be made whole.

Let's take a simple example. An investor has $100,000 invested in Total Bond Market which has an sec yield of 2.07% - slightly above the current rate of inflation of about 2%. Tomorrow, inflation spikes at 7%. TBM will drop to about 75% of It's previous NAV, the fund will initially thereafter pay about 2.8%.

Thereafter, inflation runs at zero, and after about 5 years, the Nav + reinvested dividends = $100,000. Great, but even if the dividends were reinvested instead of being spent, the buying power of the $100,000 five years later is 5% less than at the time inflation spiked. You have lost 5% of your buying power.

Equities or bonds, it doesn't matter much. Those fortunate enough to have a 1MM portfolio should recognized that 3% inflation reduces their future buying power by $30,000. 4% inflation = $40,000. Borrowers are delighted of course, but I am a lender.

Dale
Inflation certainly has the potential to hurt investments. Fears are overblown, IMO.

Every indication is that central banks have the tools to stop inflation and are eager to do so, even at the cost of employment and economic growth. See the US and especially Europe. Even central banks trying to spur inflation are not always successful. See Japan.

The market anticipates some level of inflation and includes it in price. Unexpected inflation is the issue.

If you're concerned about inflation, buy TIPS, especially if you're going long.
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Re: Leon Cooperman giving the same advice as Warren

Post by Jeff Albertson »

The real puzzle, why would anyone watch CNBC?
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Re: Leon Cooperman giving the same advice as Warren

Post by tibbitts »

stemikger wrote:A few months ago I asked Vanguard the following question on Facebook.

Warren Buffett is telling the average Jane and Joe to say out of bonds and keep enough in cash to stay secure and put the rest in a low cost index fund that buys America. His particular choice is the Vanguard Index 500.

Today on CNBC, Leon Cooperman gave the same advice. He said bonds of all types are a terrible investment and one should hold enough cash and the rest in stocks.

Vanguard's response to my question was bonds are still a good diversifier, but they never said a good investment.

Does it make you wonder why two of these giants would be wrong and if Vanguard has too much of an vested interest to change their view on bonds.

I know this topic has been talked about a lot, but do you think it's time for a new plan in order to have a meaningful retirement? Even Jack has been saying more and more that one should count social security as a fixed income portion of a portfolio.
I don't see that VG has much of a stake in the bond vs. stock argument, since it's one of the preferred providers for both types of investments.

You suggest a "new plan" for retirement, and we're all eagerly waiting to hear what you have in mind. Surely you're not suggesting that a non-diversified portfolio containing nothing but large-cap US stocks, along with some presumably small percentage of zero-earning cash, is even close to a reasonable solution. So, what's a reasonable alternative to the traditional portfolios that have been discussed here for years?

I agree that experts are struggling along with the rest of us to come up with a workaround to what many believe will be a low-return future for all varieties of stocks, bonds, commodities, real estate... every asset class. But I'm not seeing how a bet on just one of many poor-potential asset classes - and a little cash - is a winning strategy.
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Re: Leon Cooperman giving the same advice as Warren

Post by joe8d »

Does it make you wonder if Vanguard has too much of an vested interest to change their view on bonds.
Yes, VG does.
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Re: Leon Cooperman giving the same advice as Warren

Post by White Coat Investor »

I'm not going to take the advice of anyone who can't see that a TSM index fund is superior to a S&P 500 Index fund.
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Re: Leon Cooperman giving the same advice as Warren

Post by Dale_G »

richard wrote: ... Inflation certainly has the potential to hurt investments. Fears are overblown, IMO.

Every indication is that central banks have the tools to stop inflation and are eager to do so, even at the cost of employment and economic growth. See the US and especially Europe. Even central banks trying to spur inflation are not always successful. See Japan.

The market anticipates some level of inflation and includes it in price. Unexpected inflation is the issue.

If you're concerned about inflation, buy TIPS, especially if you're going long.
Year - inflation US

1974 11.0%
1975 9.1%
1976 5.8%
1977 6.5%
1978 7.6%
1979 11.3%
1980 13.5%
1981 10.3%

I don't think the central banks have any tools today that were not available to them in the 1974 to 1981 period. And I don't think the new central bankers are any smarter than the guys and girls of 40 years ago.

And this is pretty telling, "Even central banks trying to spur inflation are not always successful." So central banks can't seem to spur inflation, but somehow they will be able to stop it?

And after taxes, TIPS don't cut it either.

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Re: Leon Cooperman giving the same advice as Warren

Post by staythecourse »

Folks should always do what is comfortable, but I have said numerous times the bond investors on this site are the folks who do not seem to understand that there is no free lunch. Folks want the diversification, i.e."if stocks go down I know my bonds will soften the blow", but yet the same folks want to get a good return as well.

I think nearly everyone on this board has lived or invested or both during the greatest bond bull market in history which may never show up again. It has skewed folks view on bond or any fixed income investing.

Bonds should continue to do what they were always supposed to do and that is cut the left and right tails off the returns of a stock portfolio. Less risk for less return.

Good luck.
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Re: Leon Cooperman giving the same advice as Warren

Post by JoMoney »

EmergDoc wrote:I'm not going to take the advice of anyone who can't see that a TSM index fund is superior to a S&P 500 Index fund.
Maybe whoever you're referring to (I'm guessing Buffett?) has different preferences than you. Not everyone believes that more is always better, that diversification means owning "everything", or that small-caps are "superior".
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Re: Leon Cooperman giving the same advice as Warren

Post by SpringMan »

I was told by a Vanguard CFP that one should not hold cash in IRAs. The only cash they recommend is an emergency fund and money for short term needs such as home repair, autos, etc. They influenced me to deploy cash into total bond market fund. In fact they tried to talk me out of short term bonds, saying TBM has short term, intermediate term, and long term already. I did not take this advice and still hold short term corporate index along side of TBM and the currency hedged International bond fund.

By the way, everybody is not on first name basis with Warren. When I read this title, I thought Elizabeth Warren.
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Re: Leon Cooperman giving the same advice as Warren

Post by Professor Emeritus »

Grt2bOutdoors wrote:Cash = Fiat money
.
Land deeds=Fiat ownership
Car titles =Fiat ownership

Etc etc etc

All repeat all concepts of property ownership are FIAT

Nothing except the government can create "ownership"
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Re: Leon Cooperman giving the same advice as Warren

Post by SpringMan »

Professor Emeritus wrote:
Grt2bOutdoors wrote:Cash = Fiat money
.
Land deeds=Fiat ownership
Car titles =Fiat ownership

Etc etc etc

All repeat all concepts of property ownership are FIAT

Nothing except the government can create "ownership"
Chrysler = Fiat ownership :happy
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Re: Leon Cooperman giving the same advice as Warren

Post by tibbitts »

joe8d wrote:
Does it make you wonder if Vanguard has too much of an vested interest to change their view on bonds.
Yes, VG does.
Where do you expect the bond money would go if VG "changes its view?" Away from VG? I believe the argument being made isn't to take a 50/50/0(cash) portfolio and make it 50/0/50. I'm assuming the argument is more to go to 100/0/0, where there's perhaps some additonal cash in the (not-represented, per tradition) emergency fund than there would have been with bonds in the allocation. I think everybody would agree that VG is among the most competitive providers of that 100% equity allocation, so I'm not seeing that money leaving VG.

Obviously VG has already changed its view on stocks vs. bonds; several years ago VG significantly (over?) committed its TR funds to stocks relative to their previous allocation. VG has changed its view to at least some extent on active vs. passive - witness the new complaints about VG CFPs recommending essentially 3 fund passive portfolios vs. the previous complaints about them recommending multiple active funds (notably, Diversified Equity.) So probably if so inclined, VG wouldn't hesitate to recommend a higher-yet equity allocation.
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Re: Leon Cooperman giving the same advice as Warren

Post by Leesbro63 »

FWIW this is pretty much the same as Dr. Bernstein's advice. He says to keep your fixed income short...which is close to their comments to keep it as cash. Bernstein admits he's been wrong.....SO FAR.
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Re: Leon Cooperman giving the same advice as Warren

Post by richard »

Dale_G wrote:
richard wrote: ... Inflation certainly has the potential to hurt investments. Fears are overblown, IMO.

Every indication is that central banks have the tools to stop inflation and are eager to do so, even at the cost of employment and economic growth. See the US and especially Europe. Even central banks trying to spur inflation are not always successful. See Japan.

The market anticipates some level of inflation and includes it in price. Unexpected inflation is the issue.

If you're concerned about inflation, buy TIPS, especially if you're going long.
Year - inflation US

1974 11.0%
1975 9.1%
1976 5.8%
1977 6.5%
1978 7.6%
1979 11.3%
1980 13.5%
1981 10.3%

I don't think the central banks have any tools today that were not available to them in the 1974 to 1981 period. And I don't think the new central bankers are any smarter than the guys and girls of 40 years ago.
They're more interested in keeping inflation very low than they were during that era. Then Fed chair William Miller was not particularly interested in lowering inflation. His replacement, Paul Volcker, was and he got inflation down to around 4%. Since then the US Fed has lowered its target to 2%.

Macroeconomics and monetary theory have made substantial changes in the past 30 years. Not all in the right direction, but the field is not static.
Dale_G wrote:And this is pretty telling, "Even central banks trying to spur inflation are not always successful." So central banks can't seem to spur inflation, but somehow they will be able to stop it?
Yes. Monetary policy is much more effective in stimulating an economy when the economy is not at the zero lower bound. Raising interest rates above zero is easy. Lowering nominal rates below zero is not easy.
Dale_G wrote:And after taxes, TIPS don't cut it either.
Hold TIPS in a tax-deferred account.
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Re: Leon Cooperman giving the same advice as Warren

Post by TheTimeLord »

Pretty much in line with where I have been moving for a year or so. Exception is I hold more than 1 index fund. For me setting aside X years of living expenses in a CD ladder or I Bonds then buying equities (especially on dips) has been a more attractive approach then buying an intermediate term bond fund.
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Re: Leon Cooperman giving the same advice as Warren

Post by staythecourse »

EmergDoc wrote:I'm not going to take the advice of anyone who can't see that a TSM index fund is superior to a S&P 500 Index fund.
Umm... No.

One is not any better then the other. They just follow different indexes with one (SP500) constituting 70% of the other (TSM). No surprise over the long run they have basically the same risk, return, and correlation coefficients.

If over a time period small stocks do well then TSM will do a bit better then sp500 and if large caps go on a tear then SP500 is your "better" fund.

In the end arguing over which is better is like arguing is coke or pepsi better. There really is no correct answer. Well I would likely say the best between the two is one that you can access as cheap as possible.

Good luck.
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Re: Leon Cooperman giving the same advice as Warren

Post by White Coat Investor »

staythecourse wrote:
EmergDoc wrote:I'm not going to take the advice of anyone who can't see that a TSM index fund is superior to a S&P 500 Index fund.
Umm... No.

One is not any better then the other. They just follow different indexes with one (SP500) constituting 70% of the other (TSM). No surprise over the long run they have basically the same risk, return, and correlation coefficients.

If over a time period small stocks do well then TSM will do a bit better then sp500 and if large caps go on a tear then SP500 is your "better" fund.

In the end arguing over which is better is like arguing is coke or pepsi better. There really is no correct answer. Well I would likely say the best between the two is one that you can access as cheap as possible.

Good luck.
JoMoney wrote:
EmergDoc wrote:I'm not going to take the advice of anyone who can't see that a TSM index fund is superior to a S&P 500 Index fund.
Maybe whoever you're referring to (I'm guessing Buffett?) has different preferences than you. Not everyone believes that more is always better, that diversification means owning "everything", or that small-caps are "superior".

I absolutely disagree. While the difference between them is admittedly not very large (and perhaps not even significant) TSM is better for several reasons:

1) More diversified
2) More small tilted
3) Higher returning historically (8.1% vs 8.61% over the last 10 years)
4) The S&P 500 index funds get front-run
5) The S&P 500 is, in a way, actively managed

Rick Ferri agrees with me, by the way: http://www.rickferri.com/blog/investmen ... ndex-fund/

A guru who isn't aware of these facts might not be a guru worth following. If you two want to use a 500 fund over TSM, knock yourself out. 2nd place is probably good enough. Seems silly to take it whenever 1st place is available though.
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Re: Leon Cooperman giving the same advice as Warren

Post by greg24 »

Well, if two giants said it, Vanguard is clearly wrong. Sell all your bonds, immediately.
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Re: Leon Cooperman giving the same advice as Warren

Post by Grt2bOutdoors »

greg24 wrote:Well, if two giants said it, Vanguard is clearly wrong. Sell all your bonds, immediately.
Yes, please do so...I along with Warren's insurance subsidiaries will be there to scoop up those higher yields. Lower prices = higher yields. Both Warren and Leon clearly need higher yields to propel their plans forward.
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Re: Leon Cooperman giving the same advice as Warren

Post by Grt2bOutdoors »

StarbuxInvestor wrote:Pretty much in line with where I have been moving for a year or so. Exception is I hold more than 1 index fund. For me setting aside X years of living expenses in a CD ladder or I Bonds then buying equities (especially on dips) has been a more attractive approach then buying an intermediate term bond fund.
Prepaying down debt is even more attractive than an intermediate term bond fund. Nothing wrong with liability reduction on the balance sheet, especially when it's your balance sheet! :D
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Re: Leon Cooperman giving the same advice as Warren

Post by oneleaf »

EmergDoc wrote: I absolutely disagree. While the difference between them is admittedly not very large (and perhaps not even significant) TSM is better for several reasons:

1) More diversified
2) More small tilted
3) Higher returning historically (8.1% vs 8.61% over the last 10 years)
4) The S&P 500 index funds get front-run
5) The S&P 500 is, in a way, actively managed

Rick Ferri agrees with me, by the way: http://www.rickferri.com/blog/investmen ... ndex-fund/

A guru who isn't aware of these facts might not be a guru worth following. If you two want to use a 500 fund over TSM, knock yourself out. 2nd place is probably good enough. Seems silly to take it whenever 1st place is available though.
I assumed he recommends S&P500 index because it is a well known index that people have heard of, and it generally does not make enough of a difference which domestic large cap weighted fund you choose.

From an investor's or academic point of view, the CSRP style indexes (Large Cap to replace S&P500) or TSM are simply better products, even if marginal. The fact that it doesn't make enough of a difference to matter though, is why Buffett or Cooperman might as well just say the one that everyone has heard of.

That said, I think Buffett's and Cooperman's bond warning is oversensationalized. With short term bonds and CD's being a mainstay in investors' portfolios, the cash vs bonds is more of a spectrum than it is distinguishable asset classes where one is good and the other is bad. I think the better advice is not to go out too long, unless you are prepared for the volatility. Bernstein has been recommending this forever (stay short and keep credit quality high).
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Re: Leon Cooperman giving the same advice as Warren

Post by nisiprius »

I don't know whether or not Vanguard Total Stock Market Index Fund is "better" or "worse" than the Vanguard 500 Index Fund. What I can personally say about them is this. My original reason for owning Vanguard 500 Index Fund was that I wanted to own "the stock market," and for ages the S&P 500 was considered to be the accepted measure of "the stock market." Given that objective, and given their current equal costs, Total Stock is a more faithful realization of the objective I chose.

Furthermore, it is the obvious choice. Choosing the S&P 500 instead is not the obvious choice.

In order to choose Vanguard 500 Index Fund, you really need to articulate some sensible reason for choosing it in preference to Total Stock. It doesn't need to be a profound reason, it can be "I think it's good enough and I grew up with it," or "I have a theory under which I prefer large-caps, and Vanguard Large-Cap Stock Index Fund costs slightly more," or "I think the S&P committee's 'leading companies in leading industries' are superior," or "when they say on the news that the S&P went up 2% I want to know that my own fund went up 2%" or "own some already, didn't want to sell for tax reasons and didn't want to muck up a portfolio with two almost identical funds" or anything.

What bothers me a lot is Buffett's failure to give any explanation whatsoever for a non-obvious choice. He's free to choose Vanguard 500 Index for his wife, but in order to earn my respect he needs to mention Total Stock, if only to explain why he dismisses it. Similarly, he's free to warn about the terrible dangers of inflation to "bonds," but in order to earn my respect he needs to mention TIPS, if only to explain why he dismisses it.

I do not trust people who either wear blinkers or pretend to be wearing them.
Last edited by nisiprius on Tue Oct 21, 2014 12:45 pm, edited 3 times in total.
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Re: Leon Cooperman giving the same advice as Warren

Post by oneleaf »

nisiprius wrote: What bothers me a lot is Buffett's failure to give any explanation whatsoever for a non-obvious choice. He's free to choose Vanguard 500 Index for his wife, but in order to earn my respect he needs to mention Total Stock, if only to explain why he dismisses it. Similarly, he's free to warn about the terrible dangers of inflation to "bonds," but in order to earn my respect he needs to mention TIPS, if only to explain why he dismisses it.
Well I certainly agree with you here, but since most people have the attention span of an infant these days, you can't get all that great info into a soundbite!
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Re: Leon Cooperman giving the same advice as Warren

Post by garlandwhizzer »

Jeff Albertson wrote:
The real puzzle, why would anyone watch CNBC?
It's okay to watch it, but it's very important to keep the mute button pressed.

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Re: Leon Cooperman giving the same advice as Warren

Post by nisiprius »

garlandwhizzer wrote:Jeff Albertson wrote:
The real puzzle, why would anyone watch CNBC?
It's okay to watch it, but it's very important to keep the mute button pressed.

Garland Whizzer
Unless John C. Bogle is on and talking about the importance of staying the course, while second-by-second updates of the S&P scroll by underneath him, in which case you want to turn up the volume and close your eyes.
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Re: Leon Cooperman giving the same advice as Warren

Post by TheTimeLord »

Grt2bOutdoors wrote:
StarbuxInvestor wrote:Pretty much in line with where I have been moving for a year or so. Exception is I hold more than 1 index fund. For me setting aside X years of living expenses in a CD ladder or I Bonds then buying equities (especially on dips) has been a more attractive approach then buying an intermediate term bond fund.
Prepaying down debt is even more attractive than an intermediate term bond fund. Nothing wrong with liability reduction on the balance sheet, especially when it's your balance sheet! :D
To me paying down debt is always an excellent idea. Makes calculating net worth so much easier :D .
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Re: Leon Cooperman giving the same advice as Warren

Post by lazyday »

stemikger wrote:Warren Buffett is telling the average Jane and Joe to say out of bonds and keep enough in cash to stay secure
You don't have to own bond funds or cash.

You could just use savings bonds and/or CDs.

FDIC insurance and generous terms on savings bonds means you get a free lunch compared to institutions investing in bonds.

I also think the S&P 500 fund is an odd choice, compared to something like 50% Total (US) Stock Market and 50% Total World.
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Re: Leon Cooperman giving the same advice as Warren

Post by JoMoney »

EmergDoc wrote:...
While the difference between them is admittedly not very large (and perhaps not even significant) TSM is better for several reasons:

1) More diversified
2) More small tilted
3) Higher returning historically (8.1% vs 8.61% over the last 10 years)
4) The S&P 500 index funds get front-run
5) The S&P 500 is, in a way, actively managed

Rick Ferri agrees with me, by the way: http://www.rickferri.com/blog/investmen ... ndex-fund/

A guru who isn't aware of these facts might not be a guru worth following. If you two want to use a 500 fund over TSM, knock yourself out. 2nd place is probably good enough. Seems silly to take it whenever 1st place is available though.
I think that's a better statement. At least you've quantified it with reasons WHY you feel it's better, even if some of them are wrong or subjective. Their are plenty of reasons people may prefer not be "diversified" into small-caps.
The historical "higher returning" index is a period dependent event, it goes back and forth over time. Over the entire documented/accepted history of the indexes the S&P has actually outperformed (according to DFA's "The Matrix Book 2014")
The CRSP 1-10 index from 1926 through 2013 had an annual return of 9.9%
The S&P500 from 1926 through 2013 had an annual return of 10.1%

Your choice of what's 1st and 2nd is subjective of your preferences, and perhaps the "stories" you buy into. If your goal is to "own everything" the Total Stock market is the better index. If you would prefer an index of "leading companies in leading industries" the S&P500 might be a better choice. If you prefer even some screening for investment worthiness opposed to owning "everything", the S&P might be preferred. For better or worse, anyone who went through the dot-com era and saw the differences between 2000-2002 might prefer an index that doesn't buy stocks of companies without a record of earnings. There are other features and detractors of both funds, but unless you define what it is you're looking for I don't think you can say which one is better for that aspect.... and at the end of the day, arguing over which is best is like arguing about how many angels can dance on the head of a pin. ... Incidentally, Buffett was asked specifically about VTI / Total Stock Market, and he's said, "...That's good enough..."

When it comes to guru's in the investing world, I'll take Buffett's advice every day of the week. If he start's giving medical advice, I might look elsewhere.
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Re: Leon Cooperman giving the same advice as Warren

Post by White Coat Investor »

Screening for investment worthiness sounds an awful lot like active management. I see that as a downside. I guess if you believe in active management on the other hand....
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Re: Leon Cooperman giving the same advice as Warren

Post by JoMoney »

EmergDoc wrote:Screening for investment worthiness sounds an awful lot like active management. I see that as a downside. I guess if you believe in active management on the other hand....
I think there's been debates on here regarding the fact that anything that's not "the total market" portfolio is active management, and really even the "Total Market" indexes exclude some stocks. It may be that you prefer as pure of a theoretical "Total Market" approach as you can find, but I think you'll find a lot of smart folks that aren't completely against active management, and have preferences that don't match the "Total Market". Lots of Wellington advocates, tilters, dividend advocates, etc...on here. Vanguard isn't against it:
http://www.investmentnews.com/article/2 ... management
...Vanguard spokesman David Hoffman wrote the firm believes in both index investing and active management “at a reasonable price.” “We believe the most crucial factor for investing success is cost,” he said...
and I think you'd have a hard time convincing Buffett that his active approach hasn't added any value. But none the less, he recommends a low cost index fund for the vast majority of people, he seems to prefer the S&P500, perhaps preferring premises suggested by Ben Graham (such as that passive investors shouldn't buy small-caps), or maybe just picking it to thumb his nose at the academic "Efficient Market" theories... Regardless, It seems silly to me to pick one index and say that index is "superior" than some other index without at least stating what factors you believe it's "superior" at achieving. You may prefer it for various reasons, but that doesn't make it superior for everyone and every purpose.
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Re: Leon Cooperman giving the same advice as Warren

Post by Nahum »

Warren Buffet and Leon Cooperman are worth billions. They can afford to have 100% stock portfolios, but not the average investor. Maybe they try to tip off the masses so they can benefit.
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Re: Leon Cooperman giving the same advice as Warren

Post by TheTimeLord »

Indexes are artifical constructs designed to represent a group of stocks or segment of a market. The goal of index investor is to get near market returns on their equities with the market returns being represnted by an index. Whether that is achieve by a fund holding every stock in and index or a subset that tracks the index accurately to me is totally irrelevant. Personallyfrom what I can tell there is reall no diversification difference between a fund holding a broadly divesified portfolio of 500 stocks tracking an index and one holding 2,000. Others may differ. I always go back to something I heard long ago and that is unless you have sector concentration somewhere around 40 stocks you become a closet index and at that time the average mutual fund had around 120 stocks. That is why most active funds don't work (imho) because they are closet indexes with active management fees on top not because of management risk. The problem for a active fund unless they close the fund at a fairly small size they will keep adding new holdings until they are a closet index or they end up with positions too large in their individual holdings to be able to move their money without effecting the price to their determent. This is just one person's opinion.
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Re: Leon Cooperman giving the same advice as Warren

Post by TheTimeLord »

Nahum wrote:Warren Buffet and Leon Cooperman are worth billions. They can afford to have 100% stock portfolios, but not the average investor. Maybe they try to tip off the masses so they can benefit.
Are you saying that this advice from Buffet is given to somehow enrich himself?
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Re: Leon Cooperman giving the same advice as Warren

Post by Nahum »

Maybe or maybe not. For the most part I believe Warren Buffet stated his opinion but I know he is not going to give out all his secrets to the press but it could be a possibility. You gain a lot by having the right information.
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Re: Leon Cooperman giving the same advice as Warren

Post by TheTimeLord »

Nahum wrote:Maybe or maybe not. For the most part I believe Warren Buffet stated his opinion but I know he is not going to give out all his secrets to the press but it could be a possibility. You gain a lot by having the right information.
How Buffet and Berkshire invest is nothing an individual investor could emulate. He is not giving away his secrets per se although they are not that secret.
Last edited by TheTimeLord on Wed Oct 22, 2014 4:26 pm, edited 1 time in total.
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Re: Leon Cooperman giving the same advice as Warren

Post by Tigermoose »

I buy a lot of the S&P 500 index because it is available in my 401ks. The TSM is not. I'm sure this is the case for a lot of investors.
Institutions matter
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Re: Leon Cooperman giving the same advice as Warren

Post by stemikger »

Tigermoose wrote:I buy a lot of the S&P 500 index because it is available in my 401ks. The TSM is not. I'm sure this is the case for a lot of investors.
This is also my issue. I don't think it really matters in the long run. They are pretty identical when it comes to long term returns.
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