Why doesn't Warren Buffett follow his own advice?

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tvubpwcisla
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Why doesn't Warren Buffett follow his own advice?

Post by tvubpwcisla » Sat May 02, 2020 11:55 pm

Warren Buffett recommends that after he passes the cash left to his wife should be invested 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. Does anyone know why he does not invest this way? I think he buys stocks in individual companies.

:confused
Stay invested my friends.

fwellimort
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Re: Why doesn't Warren Buffett follow his own advice?

Post by fwellimort » Sun May 03, 2020 12:04 am

Berkshire Hathaway's goal is to "buy out" businesses.

Warren Buffett is just doing his job.

His wife does not have a full time job picking out businesses to purchase.

If everyone indexed, indexing wouldn't work. And to get "filthy rich", indexing is a poor way to go. Big wealth in one's lifetime is created by concentrating, not by diversifying. If Bezos had a diversified portfolio for instance, Bezos would never have been the wealthiest (known to the public) figure in the US.

Indexing provides average returns without fees. That's all.
Buying an index is the better solution for 90+% of the population. But if you are in the other side of the coin, buying an index is shooting yourself short.
Last edited by fwellimort on Sun May 03, 2020 12:08 am, edited 1 time in total.

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JoMoney
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Re: Why doesn't Warren Buffett follow his own advice?

Post by JoMoney » Sun May 03, 2020 12:07 am

Because he's an active, or what Benjamin Graham called an "enterprising" investor. His wife is not. Nor is active investing something that most people can expect to be any good at. Why doesn't Savannah James (wife of famed basketball player Lebron James) play in the NBA?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

dru808
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Re: Why doesn't Warren Buffett follow his own advice?

Post by dru808 » Sun May 03, 2020 12:08 am

😂 good stuff
60% US equity | 25% International equity | 15% US Treasury bonds

Ferdinand2014
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Ferdinand2014 » Sun May 03, 2020 4:31 am

tvubpwcisla wrote:
Sat May 02, 2020 11:55 pm
Warren Buffett recommends that after he passes the cash left to his wife should be invested 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. Does anyone know why he does not invest this way? I think he buys stocks in individual companies.

:confused
Benjamin Graham. His mentor. 2 types of investors. Enterprising (active) and Defensive (passive). Unless you are willing to devote your waking hours to read 10K reports, you are a defensive investor. Even if I had the time or ability, given my day job, I would still rather just buy the S&P 500 and call it a day.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

Badger1754
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Badger1754 » Sun May 03, 2020 8:57 am

Don’t forget that Warren (and his managers) are also operators. If Berkshire buys a company, or even a significant stake in a company, it’s because Warren believes the company can somehow leverage the Berkshire platform (probably the insurance “float”) to make some big moves and grow. In other words, it will operate differently. I’d be curious if anyone tracked the difference in performance between companies where Berkshire had a control stake (Precision Castparts, etc) vs those where Berkshire had a non control stake (BofA, etc) although anyone who has WB as a shareholder probably takes his advice seriously.

Compare this to a typical active investor, who either doesn’t have the capital to buy a control stake or the standing to be taken seriously by management. For their investments to outperform you have to believe three things:

1. They have some operating advantage to improve their performance.
2. They can and will competently execute on this advantage in a reasonable timeframe (this is harder than it sound; many “good ideas” have failed on bad execution.)
3. Nobody else recognizes #1 and #2.

index2max
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Re: Why doesn't Warren Buffett follow his own advice?

Post by index2max » Sun May 03, 2020 10:10 am

Last time around in 2008 Warren Buffet bought a bunch of bank stocks and gave Goldman Sachs a preferred loan for $5 billion.

Would he have made those investments had he not expected the Federal Reserve to bail out the banks?

I understand he wants to invest in businesses with competitive "moat" with some barriers to entry in their respective industries, but I feel like his investments were in a bunch of stuff that had short-term prospects rather than great long-term ones.

It's hard for him to find any deals because right on March 23, 2020 as the market was going down, the Federal Reserve immediately announced more economic interventions because the market is only allowed to go up, not down. Why then do the stock exchanges have "circuit breakers" that stop trading if an index decreases by 7% or more? Never heard of any "circuit breakers" turning on if the market shoots up more than 7% intraday.

Guys like Warren Buffet function best in true, free markets. We don't have that as long as the Federal Reserve is printing money out of thin air to bail out the powers that be.

Warren Buffet was smart enough to make money on the bailout wagon in 2008, but a guy like with common sense has to know all this money printing isn't sustainable. It's better for him to keep sitting on as much cash as possible waiting for an eventual market crash because of all the malinvestments the Federal Reserve enables with their market interventions.

Turkishcoffee
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Turkishcoffee » Sun May 03, 2020 10:14 am

Berkshire is a holding company for multiple businesses. This gives them some advantages that likely counter the ill effects of their size when investing.

I listened to the whole meeting yesterday, and I must say, I don’t think it possible for Buffett to more strongly praise the wisdom of a low cost market index.

Mr. Bogle is smiling down from heaven right now. :beer

Ki_poorrichard
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Ki_poorrichard » Sun May 03, 2020 3:18 pm

index2max wrote:
Sun May 03, 2020 10:10 am
Last time around in 2008 Warren Buffet bought a bunch of bank stocks and gave Goldman Sachs a preferred loan for $5 billion.

Would he have made those investments had he not expected the Federal Reserve to bail out the banks?

I understand he wants to invest in businesses with competitive "moat" with some barriers to entry in their respective industries, but I feel like his investments were in a bunch of stuff that had short-term prospects rather than great long-term ones.

It's hard for him to find any deals because right on March 23, 2020 as the market was going down, the Federal Reserve immediately announced more economic interventions because the market is only allowed to go up, not down. Why then do the stock exchanges have "circuit breakers" that stop trading if an index decreases by 7% or more? Never heard of any "circuit breakers" turning on if the market shoots up more than 7% intraday.

Guys like Warren Buffet function best in true, free markets. We don't have that as long as the Federal Reserve is printing money out of thin air to bail out the powers that be.

Warren Buffet was smart enough to make money on the bailout wagon in 2008, but a guy like with common sense has to know all this money printing isn't sustainable. It's better for him to keep sitting on as much cash as possible waiting for an eventual market crash because of all the malinvestments the Federal Reserve enables with their market interventions.
+1
"We are never certain. We are always ignorant to some degree." - Peter L. Bernstein

Superleaf444
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Superleaf444 » Sun May 03, 2020 3:23 pm

index2max wrote:
Sun May 03, 2020 10:10 am
Warren Buffet was smart enough to make money on the bailout wagon in 2008, but a guy like with common sense has to know all this money printing isn't sustainable. It's better for him to keep sitting on as much cash as possible waiting for an eventual market crash because of all the malinvestments the Federal Reserve enables with their market interventions.
Lol, wut. He speaks highly of the Fed. He is a big fan of Jerome Powell. Less than 24 hours ago he was singing the fed and Powell praises.

BH+
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Re: Why doesn't Warren Buffett follow his own advice?

Post by BH+ » Sun May 03, 2020 3:28 pm

tvubpwcisla wrote:
Sat May 02, 2020 11:55 pm
Warren Buffett recommends that after he passes the cash left to his wife should be invested 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. Does anyone know why he does not invest this way? I think he buys stocks in individual companies.

:confused

Shareholders pay WB to manage the BRK portfolio, among other responsibilities. Some believe he can beat the market.

Superleaf444
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Superleaf444 » Sun May 03, 2020 3:32 pm

tvubpwcisla wrote:
Sat May 02, 2020 11:55 pm
Warren Buffett recommends that after he passes the cash left to his wife should be invested 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. Does anyone know why he does not invest this way? I think he buys stocks in individual companies.

:confused
He says the average person should do that. And very few investors should try to purchase single stocks/companies , even then they have to be the Michael Jordans of their fields.

His biography is pretty interesting on how he views things. He is an incredibly rare breed in terms of being able to understand the broad market.

fwellimort
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Re: Why doesn't Warren Buffett follow his own advice?

Post by fwellimort » Sun May 03, 2020 3:33 pm

It's difficult to do your job properly when the government keeps interfering in the middle and choosing the outcome.
Imagine playing a game of Monopoly and whenever you get ahead, some 3rd party entity gives every other player a house.

That said, I think on a risk adjusted basis, Berkshire as an entity is doing very well.
Berkshire Hathaway has significant cash in its company's portfolio. Other companies right now have negative balances.

We are basically comparing an entity that has 80% company 20% cash vs 180% company -80% cash.
I'm more surprised how well Berkshire is performing considering it has to compete vs those with leverages.

Who would have known having negative cash is a net positive to your company if your company is too big to fail. I surely didn't.
It's quite something.

deltaneutral83
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Re: Why doesn't Warren Buffett follow his own advice?

Post by deltaneutral83 » Sun May 03, 2020 3:37 pm

I would bet the odds of being a stock picker and consistently beating the relative benchmark(s) for the companies you select for, say, 20 years is the same ratio as professional athletes having a 4+ year career (i.e. getting the "second contract"). Both of these relative to the public at large, with well over the billion number in terms of global sample size. There is no question that 90+% of people who pay advisers would be better off if their advisers had them in index funds and just charged them for planning/advice and not comssions/AUM etc etc. Buffet accurately points out that that model doesn't sell very well.

index2max
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Re: Why doesn't Warren Buffett follow his own advice?

Post by index2max » Sun May 03, 2020 3:39 pm

Superleaf444 wrote:
Sun May 03, 2020 3:23 pm
index2max wrote:
Sun May 03, 2020 10:10 am
Warren Buffet was smart enough to make money on the bailout wagon in 2008, but a guy like with common sense has to know all this money printing isn't sustainable. It's better for him to keep sitting on as much cash as possible waiting for an eventual market crash because of all the malinvestments the Federal Reserve enables with their market interventions.
Lol, wut. He speaks highly of the Fed. He is a big fan of Jerome Powell. Less than 24 hours ago he was singing the fed and Powell praises.
Guys like Warren Buffet are value investors. They thrive when everyone else is panicking and their are bargain deals to be had on good companies. It's hard for him to thrive while asset prices are overvalued due to the fed's money printing.
Buffett practically blamed the Fed, saying that "the Fed acted too quickly and too strongly for Berkshire to may any big deals right now."
https://www.zerohedge.com/markets/brace ... re-remains

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Clever_Username
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Re: Why doesn't Warren Buffett follow his own advice?

Post by Clever_Username » Sun May 03, 2020 4:45 pm

JoMoney wrote:
Sun May 03, 2020 12:07 am
Why doesn't Savannah James (wife of famed basketball player Lebron James) play in the NBA?
I love how great this question answers the original in a way everyone can picture. Bravo, well done.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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