Buffett on Asset Allocation

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Northern Flicker
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Buffett on Asset Allocation

Post by Northern Flicker »

There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
Risk is not a guarantor of return.
000
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Re: Buffett on Asset Allocation

Post by 000 »

Sounds good to me!

Percentage based AAs never made much sense to me. Why, for example, if I already have enough fixed income in absolute terms would I sell my stocks just because they did well?
AdrianC
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Re: Buffett on Asset Allocation

Post by AdrianC »

Berkshire itself is about 80/20, per Buffett (CNBC Feb 2020).

I looked back and he’s kept about 20-25% in cash/bonds for at least 10 years.
Triple digit golfer
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Re: Buffett on Asset Allocation

Post by Triple digit golfer »

I don't care what billionaires think is nonsense regarding asset allocation. They are playing an entirely different "game" than regular people just investing so they can quit working before they keel over.
langlands
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Re: Buffett on Asset Allocation

Post by langlands »

Yeah, if you see how he actually allocates and listen to how he speaks about how much to invest (pick 30 stocks, bet more on the ones you believe in), you realize that he's actually completely on the same page with "modern portfolio management." He just doesn't like to use their language because he comes from an investment culture very different from Fama-French style academic finance and there's a bit of tension between the two (mainly that academic finance mostly doesn't believe in beating the markets, which is literally the whole point of Berkshire). Also, he might genuinely think that the "gut feel" way he sizes his bets is fundamentally different from optimal portfolio allocation. Frankly, I'm not sure he can actually follow the math (which requires a little multivariable calculus) that's used in the derivation of mean-variance portfolios etc. He's fond of saying the only math you need to invest is arithmetic. I think Buffett is an investment genius who intuitively knows how to size his allocations well, but never cared for portfolio theory. It's just as well because for the way he invests, the error bars are so large that whether a computer could improve on his allocation anyway is doubtful. This holds in general I would say for most fundamentals based long-term investors.
Last edited by langlands on Tue Jan 12, 2021 6:53 pm, edited 1 time in total.
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Re: Buffett on Asset Allocation

Post by langlands »

Triple digit golfer wrote: Tue Jan 12, 2021 6:47 pm I don't care what billionaires think is nonsense regarding asset allocation. They are playing an entirely different "game" than regular people just investing so they can quit working before they keel over.
I've seen this response multiple times and I don't understand it at all. In what way do you think they're playing an entirely different game? I could understand if you're talking about Jim Simons or Peter Thiel who has access to investing methods the typical retail investor doesn't. But Buffett talks mostly about stocks and bonds, assets that we all have access to. Do you think he's doing something other than maximizing returns while taking into account risk, which is what every single investor is attempting to do?
MarkRoulo
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Re: Buffett on Asset Allocation

Post by MarkRoulo »

Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
Warren Buffet's 90% S&P500/10% T-bills is for his wife after he is gone. His wife who will have billions of dollars.

Warren does not believe in setting asset allocation percentages FOR HIS INVESTMENTS for Berkshire Hathaway.

None of this is advice he has offered for random small investors.
alex_686
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Re: Buffett on Asset Allocation

Post by alex_686 »

langlands wrote: Tue Jan 12, 2021 6:49 pm Yeah, if you see how he actually allocates and listen to how he speaks about how much to invest (pick 30 stocks, bet more on the ones you believe in), you realize that he's actually completely on the same with "modern portfolio management." He just doesn't like to use their language because he comes from an investment culture very different from Fama-French style academic finance and there's a bit of tension between the two (mainly that academic finance mostly doesn't believe in beating the markets, which is literally the whole point of Berkshire).
I am going to disagree.

Buffett is a bottom up fundamental investor. Fama-French is top down analysis of factors that drive return. It is like the difference between special versus general relativity. One is good at studying small things, the other large, and you just can't quite combine the 2.
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JoMoney
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Re: Buffett on Asset Allocation

Post by JoMoney »

MarkRoulo wrote: Tue Jan 12, 2021 6:57 pm
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
Warren Buffet's 90% S&P500/10% T-bills is for his wife after he is gone. His wife who will have billions of dollars.

Warren does not believe in setting asset allocation percentages FOR HIS INVESTMENTS for Berkshire Hathaway.

None of this is advice he has offered for random small investors.
We don't know how much Buffett is leaving his wife in this bequest, but we do know that the vast portion of his Billions is already going to various philanthropic trusts. He has said specifically that this 90/10 allocation is under a premise that she might withdraw about 4% a year from it, so regardless of the dollar figure it's not out of line with retirement withdrawal others might consider.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
langlands
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Re: Buffett on Asset Allocation

Post by langlands »

alex_686 wrote: Tue Jan 12, 2021 6:58 pm
langlands wrote: Tue Jan 12, 2021 6:49 pm Yeah, if you see how he actually allocates and listen to how he speaks about how much to invest (pick 30 stocks, bet more on the ones you believe in), you realize that he's actually completely on the same with "modern portfolio management." He just doesn't like to use their language because he comes from an investment culture very different from Fama-French style academic finance and there's a bit of tension between the two (mainly that academic finance mostly doesn't believe in beating the markets, which is literally the whole point of Berkshire).
I am going to disagree.

Buffett is a bottom up fundamental investor. Fama-French is top down analysis of factors that drive return. It is like the difference between special versus general relativity. One is good at studying small things, the other large, and you just can't quite combine the 2.
Maybe I wasn't clear about what I meant by "Fama-French." That was really a short hand for all of academic finance, in particular portfolio construction theory. I'm not talking about the value, momentum factor stuff that they're famous for. I agree that Buffett is not going to look for market beating ideas from that literature. What I'm saying is that at the end of the day, every (competent) fund follows this 2 step procedure:

1) Figure out what is undervalued or overvalued and figure out how sure you are about your bet (standard deviation, for instance)
2) Construct a portfolio that optimizes your utility function given 1.

In a quant fund, this process is extremely explicit and there are literally separate teams that work on 1 and 2. Usually, 1 is considered the "secret sauce" and the most valuable part of the process. But getting 2 right is also extremely important. Furthermore, while there's a lot of "creativity" that goes into 1 and everyone can find their own niche, there's really only one correct answer to 2 (given you've decided on your utility function, aka risk profile). Buffett gets really close to this correct answer without using much math because he's an investment genius.
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JoMoney
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Re: Buffett on Asset Allocation

Post by JoMoney »

langlands wrote: Tue Jan 12, 2021 7:08 pm ...
1) Figure out what is undervalued or overvalued and figure out how sure you are about your bet (standard deviation, for instance)
...
Being "undervalued or overvalued" is antithetical to Fama-French and other "Efficient Market" based paradigms. Their whole concept is based on there being "risk premiums" associated with riskier assets that are being "efficiently" priced (not miss-priced as over or under valued)
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langlands
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Re: Buffett on Asset Allocation

Post by langlands »

JoMoney wrote: Tue Jan 12, 2021 7:14 pm
langlands wrote: Tue Jan 12, 2021 7:08 pm ...
1) Figure out what is undervalued or overvalued and figure out how sure you are about your bet (standard deviation, for instance)
...
Being "undervalued or overvalued" is antithetical to Fama-French and other "Efficient Market" based paradigms. Their whole concept is based on there being "risk premiums" associated with riskier assets that are being "efficiently" priced (not miss-priced as over or under valued)
Yep, that's right. Hence the tension as I said between Buffett and academic financial economists. But active fund managers who believe in Efficient Markets I assume are practically nonexistent. I was describing the investment process at an active fund. Of course the manager for an index fund has a completely different process that revolves around replicating the index as faithfully as possible.
langlands
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Re: Buffett on Asset Allocation

Post by langlands »

JoMoney wrote: Tue Jan 12, 2021 7:14 pm
langlands wrote: Tue Jan 12, 2021 7:08 pm ...
1) Figure out what is undervalued or overvalued and figure out how sure you are about your bet (standard deviation, for instance)
...
Being "undervalued or overvalued" is antithetical to Fama-French and other "Efficient Market" based paradigms. Their whole concept is based on there being "risk premiums" associated with riskier assets that are being "efficiently" priced (not miss-priced as over or under valued)
Yep, that's right. Hence the tension as I said between Buffett and academic financial economists. But active fund managers who believe in Efficient Markets I assume are practically nonexistent. I was describing the investment process at an active fund. Of course the manager for an index fund has a completely different process that revolves around replicating the index as faithfully as possible.
tomsense76
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Re: Buffett on Asset Allocation

Post by tomsense76 »

Couple of thoughts.

Buffet is able to take large enough positions in companies he can significantly influence the path they take. That is very different from retail investors like us (unless Buffet and others are on Bogleheads :wink:). At best we can buy some SCV and hope it pans out in the future (unlike recent history).

Also 10% bonds is likely many of years of expenses for Buffet and his wife. From what I've read about Buffet he's pretty frugal (I'm guessing his wife is similar). Given the assets he's accumulated over the years, she may never run out of that 10%. Not to say 90/10 isn't a good choice, but scale matters.
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Re: Buffett on Asset Allocation

Post by Triple digit golfer »

langlands wrote: Tue Jan 12, 2021 6:51 pm
Triple digit golfer wrote: Tue Jan 12, 2021 6:47 pm I don't care what billionaires think is nonsense regarding asset allocation. They are playing an entirely different "game" than regular people just investing so they can quit working before they keel over.
I've seen this response multiple times and I don't understand it at all. In what way do you think they're playing an entirely different game? I could understand if you're talking about Jim Simons or Peter Thiel who has access to investing methods the typical retail investor doesn't. But Buffett talks mostly about stocks and bonds, assets that we all have access to. Do you think he's doing something other than maximizing returns while taking into account risk, which is what every single investor is attempting to do?
Buffet can have all his money in a mattress earning nothing and not run out of money for hundreds of generations. It doesn't matter what his AA is. It also doesn't matter if his portfolio drops 50%. He's still got enough money to last him hundreds of generations.

To a regular investor like me and most people, having a certain percentage in fixed income could help the investor stay the course. When the market drops 50%, the investor could rebalance and not have to worry. Personal finance is personal and emotions play a role whether we want to think so or not. For a regular investor, a bad decision could mean a significant lifestyle change or eating cat food in retirement. For a multibillionaire, a bad decision losing 90% of wealth will still make him filthy rich. It just doesn't matter.

Asset allocation makes a lot of sense to regular investors like me. It helps us control the volatility of our portfolios. Again, for a multibillionaire, it doesn't matter how volatile it gets. He's still able to afford whatever he wants. Others, when investments take a hit, may have to make lifestyle changes, particularly retirees. He doesn't.

It's just not even comparable from a practical perspective.
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Re: Buffett on Asset Allocation

Post by Marseille07 »

I sometimes wonder about this myself. The Bogleheads love the idea of B&H some AA, but some *very basic* tactical trading can also be effective in my opinion.
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Re: Buffett on Asset Allocation

Post by GuitarInnovations »

AdrianC wrote: Tue Jan 12, 2021 6:36 pm Berkshire itself is about 80/20, per Buffett (CNBC Feb 2020).

I looked back and he’s kept about 20-25% in cash/bonds for at least 10 years.
Thanks for sharing this.
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Re: Buffett on Asset Allocation

Post by gwe67 »

Why are you linking to 15 year old information? How is this personable and actionable for you? Lock, please.
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Re: Buffett on Asset Allocation

Post by birdog »

Buffett is a badass. I’ll stick to my simple two-fund portfolio, but he’s still badass.
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Re: Buffett on Asset Allocation

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tomsense76 wrote: Tue Jan 12, 2021 7:32 pm Buffet is able to take large enough positions in companies he can significantly influence the path they take. That is very different from retail investors like us (unless Buffet and others are on Bogleheads :wink:). At best we can buy some SCV and hope it pans out in the future (unlike recent history).
Since the inception of Vanguard's SCV fund VISVX, it has had over 1% higher annualized returns than BRK.A.
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Re: Buffett on Asset Allocation

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delete
Last edited by 000 on Tue Jan 12, 2021 10:39 pm, edited 1 time in total.
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Re: Buffett on Asset Allocation

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Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
10% in t-bills is billions for him. His wife could easily live the rest of her life and never touch the equity position. The dividends alone from the equity position would give her a good life as well. Asset allocation doesn't really matter when you have billions living in a house that costs less than a million. It makes zero sense to compare oneself to Buffett.
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Re: Buffett on Asset Allocation

Post by retireIn2020 »

Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
I suppose if I had 80 billion I wouldn't worry about corrections/bear markets/recessions etc. 70% downturn still leaves 24 billion to live off of. Us po folk have to protect our principal. :happy
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Doctor Rhythm
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Re: Buffett on Asset Allocation

Post by Doctor Rhythm »

I wonder if he’s considered the benefits of a SPIA :wink:
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Re: Buffett on Asset Allocation

Post by Ferdinand2014 »

"If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure)."

"If a statue is ever erected to honor the person who has done the most for American investors, the hands- down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing — or, as in our bet, less than nothing — of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me. Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion."

"I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier — far riskier — than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates. It is a terrible mistake for investors with long-term horizons — among them, pension funds, college endowments and savings-minded individuals — to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk."

Buffett, Warren. Berkshire Hathaway Letters to Shareholders, 2018 . Explorist Productions. Kindle Edition.

Some corollary thoughts from Warren Buffetts shareholder letters over the past 10 years.

They are available free: https://www.berkshirehathaway.com/letters/letters.html
Last edited by Ferdinand2014 on Tue Jan 12, 2021 10:53 pm, edited 2 times in total.
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Re: Buffett on Asset Allocation

Post by tomsense76 »

willthrill81 wrote: Tue Jan 12, 2021 10:25 pm
tomsense76 wrote: Tue Jan 12, 2021 7:32 pm Buffet is able to take large enough positions in companies he can significantly influence the path they take. That is very different from retail investors like us (unless Buffet and others are on Bogleheads :wink:). At best we can buy some SCV and hope it pans out in the future (unlike recent history).
Since the inception of Vanguard's SCV fund VISVX, it has had over 1% higher annualized returns than BRK.A.
Fair enough. Though my point was more that Buffet (or other large traders) have options we can't dream of. Buying a controlling stake in a company and directing its management for example. Not that a SCV tilt wouldn't be productive.
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Re: Buffett on Asset Allocation

Post by willthrill81 »

tomsense76 wrote: Tue Jan 12, 2021 10:50 pm
willthrill81 wrote: Tue Jan 12, 2021 10:25 pm
tomsense76 wrote: Tue Jan 12, 2021 7:32 pm Buffet is able to take large enough positions in companies he can significantly influence the path they take. That is very different from retail investors like us (unless Buffet and others are on Bogleheads :wink:). At best we can buy some SCV and hope it pans out in the future (unlike recent history).
Since the inception of Vanguard's SCV fund VISVX, it has had over 1% higher annualized returns than BRK.A.
Fair enough. Though my point was more that Buffet (or other large traders) have options we can't dream of. Buying a controlling stake in a company and directing its management for example. Not that a SCV tilt wouldn't be productive.
Certainly, but for a long time now, those options have not led to productive results.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Northern Flicker
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Re: Buffett on Asset Allocation

Post by Northern Flicker »

rockstar wrote: Tue Jan 12, 2021 10:38 pm
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
10% in t-bills is billions for him. His wife could easily live the rest of her life and never touch the equity position. The dividends alone from the equity position would give her a good life as well. Asset allocation doesn't really matter when you have billions living in a house that costs less than a million. It makes zero sense to compare oneself to Buffett.
Buffett is donating 95% of his fortune to charity. I'm not agreeing with Buffett, but he does not believe in an asset allocation. He believes in equities and liquidity (t-bills).
Risk is not a guarantor of return.
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Re: Buffett on Asset Allocation

Post by Marseille07 »

Northern Flicker wrote: Wed Jan 13, 2021 12:02 am
rockstar wrote: Tue Jan 12, 2021 10:38 pm
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
10% in t-bills is billions for him. His wife could easily live the rest of her life and never touch the equity position. The dividends alone from the equity position would give her a good life as well. Asset allocation doesn't really matter when you have billions living in a house that costs less than a million. It makes zero sense to compare oneself to Buffett.
Buffett is donating 95% of his fortune to charity. I'm not agreeing with Buffett, but he does not believe in an asset allocation. He believes in equities and liquidity (t-bills).
Not sure what you or he means by "believe in" an asset allocation. It is a way to reduce portfolio volatility at the expense of (most likely) trailing the benchmark. It's just a way to operate a portfolio, not some kind of holy grail or anything like that.

As far as t-bills vs LTT, Mr. Buffett said 90/10 - so, it's not that big of a deal if you allocate the 10% on either one to be honest.
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Re: Buffett on Asset Allocation

Post by rick51 »

Ferdinand2014 wrote: Tue Jan 12, 2021 10:50 pm As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
Can this be expressed mathematically? What is a sensible multiple given today’s interest rates? There must be some boundaries on this. I mean as prevailing interest rates approach zero it doesn’t seem that a near-infinite P/E would be sensible.
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Re: Buffett on Asset Allocation

Post by AdrianC »

GuitarInnovations wrote: Tue Jan 12, 2021 8:14 pm
AdrianC wrote: Tue Jan 12, 2021 6:36 pm Berkshire itself is about 80/20, per Buffett (CNBC Feb 2020).

I looked back and he’s kept about 20-25% in cash/bonds for at least 10 years.
Thanks for sharing this.
Here's the quote:

https://www.cnbc.com/2020/02/24/full-tr ... today.html

WARREN BUFFETT: We own-- if you think about it, we’re 80-some-percent in equities. We may show $230 or $240 billion in equities, and that looks like we’re, against our market cap, we’re 40%. But we own 100% of these other businesses. Those are equities, too. I mean, we own a railroad. And we-- we own insurance companies. And those are-- those are equities. So, we’re about 80% in-- roughly in equities and about 20% in cash. And I’d rather-- I’d rather have that 20% in other good businesses. But, that is to some extent a curse of size. And it’s to some extent the fact that, it’s very hard. If interest rates stay at this level, we’ll wish we’d-- for the next 10 or 20 years, we’ll wish we’d been 125% in equities. I mean, it-- you know, equities are so much cheaper than bonds, long bonds, that-- you know, some-- something will change in a major way. I just don’t know what. And I want to be prepared for anything obviously.

Berkshire has been between 75% and 80% “equities” for the last 10 years.
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Re: Buffett on Asset Allocation

Post by 59Gibson »

Triple digit golfer wrote: Tue Jan 12, 2021 7:51 pm
langlands wrote: Tue Jan 12, 2021 6:51 pm
Triple digit golfer wrote: Tue Jan 12, 2021 6:47 pm I don't care what billionaires think is nonsense regarding asset allocation. They are playing an entirely different "game" than regular people just investing so they can quit working before they keel over.
I've seen this response multiple times and I don't understand it at all. In what way do you think they're playing an entirely different game? I could understand if you're talking about Jim Simons or Peter Thiel who has access to investing methods the typical retail investor doesn't. But Buffett talks mostly about stocks and bonds, assets that we all have access to. Do you think he's doing something other than maximizing returns while taking into account risk, which is what every single investor is attempting to do?
Buffet can have all his money in a mattress earning nothing and not run out of money for hundreds of generations. It doesn't matter what his AA is. It also doesn't matter if his portfolio drops 50%. He's still got enough money to last him hundreds of generations.

To a regular investor like me and most people, having a certain percentage in fixed income could help the investor stay the course. When the market drops 50%, the investor could rebalance and not have to worry. Personal finance is personal and emotions play a role whether we want to think so or not. For a regular investor, a bad decision could mean a significant lifestyle change or eating cat food in retirement. For a multibillionaire, a bad decision losing 90% of wealth will still make him filthy rich. It just doesn't matter.

Asset allocation makes a lot of sense to regular investors like me. It helps us control the volatility of our portfolios. Again, for a multibillionaire, it doesn't matter how volatile it gets. He's still able to afford whatever he wants. Others, when investments take a hit, may have to make lifestyle changes, particularly retirees. He doesn't.

It's just not even comparable from a practical perspective.
+1000. He has a net worth of $85-90 billion, if you assume he's giving 95% away. That's still over $4billion in the 90/10 portf. $400million in bonds? Sorry his advice may/ may not be helpul, but it doesn't apply to me.
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Re: Buffett on Asset Allocation

Post by JoMoney »

^ Berkshire also holds a substantial amount of "float" from their insurance business, to the extent they have that money invested it could be viewed the same as leverage and count against their cash holdings, the "debt" just doesn't have a specific maturity date associated to it. It's hard to know if/when those liabilities might be claimed. Buffett has repeatedly brought up their catastrophic risk exposure, and the need to hold substantial amounts of cash to offset that. I'm sure he believes he's being conservative with his estimates, but it's hard to predict what the limits of a disaster might be, or how these things might domino into negative "Lollapalooza effects" (to borrow a Munger term)
"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: Buffett on Asset Allocation

Post by Dave55 »

Buffett does not keep cash or bonds as a way to reduce portfolio volatility. Cash and bonds are dry powder for him to invest in oversold stocks, or distressed securities. What he designates in his will may be appropriate for his heirs. For most folks, especially those in retirement with no pension, a 90/10 allocation is most likely not ideal.


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Re: Buffett on Asset Allocation

Post by JoMoney »

I was going to link to this earlier, but it took me awhile to find the link and quote again, and is relevant to the discussion about whether or not Buffett thinks his suggestion is applicable to others (not just what he laid out for his wife). Whether or not it's an "asset allocation" or risk exposure anyone else is comfortable with is a personal decision based on their own individual factors, but Buffett explicitly believes this is a portfolio for an "average person ... withdrawing 3% or 4% a year"
https://www.cnbc.com/video/2014/03/03/h ... widow.html
... I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And- I wanna be sure she gets a decent result. She isn't gonna get a sensational result, you know? And since all my Berkshire shares are going-- to philanthropy-- the question becomes what does she do with the cash that's left to her?
And I've been-- part of it goes outright, part of it goes to a trustee. But I've told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments.
And the reason for the 10% in short-term governments is that if there's a terrible period in the market and she's withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She'll do fine with that. And anybody will do fine with that. It's low-cost, it's in a bunch of wonderful businesses and it takes care of itself...

https://fm.cnbc.com/applications/cnbc.c ... script.pdf
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Northern Flicker
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Re: Buffett on Asset Allocation

Post by Northern Flicker »

Marseille07 wrote: Wed Jan 13, 2021 12:06 am
Northern Flicker wrote: Wed Jan 13, 2021 12:02 am
rockstar wrote: Tue Jan 12, 2021 10:38 pm
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
10% in t-bills is billions for him. His wife could easily live the rest of her life and never touch the equity position. The dividends alone from the equity position would give her a good life as well. Asset allocation doesn't really matter when you have billions living in a house that costs less than a million. It makes zero sense to compare oneself to Buffett.
Buffett is donating 95% of his fortune to charity. I'm not agreeing with Buffett, but he does not believe in an asset allocation. He believes in equities and liquidity (t-bills).
Not sure what you or he means by "believe in" an asset allocation. It is a way to reduce portfolio volatility at the expense of (most likely) trailing the benchmark. It's just a way to operate a portfolio, not some kind of holy grail or anything like that.

As far as t-bills vs LTT, Mr. Buffett said 90/10 - so, it's not that big of a deal if you allocate the 10% on either one to be honest.
It is for liquidity, and t-bills are more liquid in that there is virtually no risk of having to sell below par due to unfavorable timing.

I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Last edited by Northern Flicker on Thu Jan 14, 2021 12:26 am, edited 1 time in total.
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Re: Buffett on Asset Allocation

Post by birdog »

Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
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Re: Buffett on Asset Allocation

Post by Marseille07 »

Reading the article more:
The idea of recommending that assets should be split 60/40 [between stocks and bonds], and then have a big announcement that you’re moving to 65/35 is pure nonsense. It just doesn’t make any sense.
It also reads that *changing AA* and making a big deal out of it, might be what he's calling nonsense. And that, I kind of agree with him.
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Re: Buffett on Asset Allocation

Post by mr_brightside »

honestly I don't understand the appeal of listening to men like Mr. Buffett for personal investment advice

he is a multi billionaire. he is in the stratosphere as far as finance goes. he could lose a million dollars a day for the rest of his life and still be a billionaire.

business advice ? maybe. but his comments on personal investing ? irrelevant to me. the sheer scale of his wealth allows him to think in terms that are not applicable to most 'average Americans' -- even one's like our sub-set who are 'affluent' by some standards.

i know for many he is a demi-god -- but I put him in the same class as Jack Welch before he passed -- a guy whose best days are in the rear view mirror. it happens.

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Re: Buffett on Asset Allocation

Post by Dave55 »

birdog wrote: Wed Jan 13, 2021 6:29 pm
Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
What is an "average investor"? Not sure that entity exists, but if it does, please enlighten.

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Re: Buffett on Asset Allocation

Post by birdog »

Dave55 wrote: Wed Jan 13, 2021 7:46 pm
birdog wrote: Wed Jan 13, 2021 6:29 pm
Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
What is an "average investor"? Not sure that entity exists, but if it does, please enlighten.

Dave
According to Warren Buffett it is “an average person who is not an expert on stocks”.
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Re: Buffett on Asset Allocation

Post by tibbitts »

Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
I assume you mean the concept of allocation for Berkshire as a business, since that seems to be what the link is about? I don't think most businesses do asset allocation in the traditional sense we think about it for personal investments.
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Re: Buffett on Asset Allocation

Post by abuss368 »

000 wrote: Tue Jan 12, 2021 6:22 pm Sounds good to me!

Percentage based AAs never made much sense to me. Why, for example, if I already have enough fixed income in absolute terms would I sell my stocks just because they did well?
I could appreciate that strategy as well. Taylor has often recommend that the money one can not afford to lose is in bonds and cash. The rest could ride.

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Re: Buffett on Asset Allocation

Post by Call_Me_Op »

Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
I think that any individual trying to invest like Berkshire is misguided.
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Re: Buffett on Asset Allocation

Post by nedsaid »

Call_Me_Op wrote: Thu Jan 14, 2021 8:10 am
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
I think that any individual trying to invest like Berkshire is misguided.
For one thing, I don't have the float that a huge insurance company enjoys.
A fool and his money are good for business.
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Re: Buffett on Asset Allocation

Post by JoMoney »

A bit of a tangent - there have been multiple threads on this board in the past questioning why Buffett has used Vanguard's S&P 500 index fund as the go-to for his hedge fund bet, bequest for his wife, and other recommendations rather than Mr. Bogle's preferred Vanguard Total Stock Market fund.
I have another wonder, people will often quote Buffett's wife bequest as being 90% S&P and 10% "T-Bills", whereas Buffett himself never mentions "T-Bills" for this his explicit words on it have been (in several situations) "Put 10% of the cash in short-term government bonds"
The distinction between a "short-term government bond" and a "t-bill" is trivial for most purposes, as is the distinction between "S&P 500 " and "Total Stock Market", but for as much attention as the latter gets, I wonder why the former gets glossed over. I'm certain Buffett is very aware of the differences (although minuscule) between "Short Term Government Bond" vs "T-Bill" as well as "S&P 500 Index" vs "Total Stock Market Index"
:confused
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Re: Buffett on Asset Allocation

Post by abuss368 »

Call_Me_Op wrote: Thu Jan 14, 2021 8:10 am
Northern Flicker wrote: Tue Jan 12, 2021 6:20 pm There has been past discussion of whether allocations that have been recommended by Warren Buffett are appropriate, such as the 90% in an S&P500 fund and 10% in t-bills that he has arranged for his wife to hold when he is gone.

On a more basic level, Mr. Buffett apparently does not even believe in the concept of asset allocation.

http://warrenbuffettoninvestment.com/bu ... llocation/
I think that any individual trying to invest like Berkshire is misguided.
I would agree. Warren Buffett has avenues and doors that open and are available to him that the general individual investing public does not. Heck, probably some of the institutional investing public (depending on size) does not!

Mr. Buffett has clearly recommended over the years that individual investors would be best served by owning index funds.

Best.
Tony
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Re: Buffett on Asset Allocation

Post by abuss368 »

Dave55 wrote: Wed Jan 13, 2021 7:46 pm
birdog wrote: Wed Jan 13, 2021 6:29 pm
Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
What is an "average investor"? Not sure that entity exists, but if it does, please enlighten.

Dave
Hi Dave -

I would agree. Most investors have different goals, time frames, and tolerance for risk. Not sure there is an “average” as you noted.

Best.
Tony
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Re: Buffett on Asset Allocation

Post by Dave55 »

birdog wrote: Wed Jan 13, 2021 8:25 pm
Dave55 wrote: Wed Jan 13, 2021 7:46 pm
birdog wrote: Wed Jan 13, 2021 6:29 pm
Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
What is an "average investor"? Not sure that entity exists, but if it does, please enlighten.

Dave
According to Warren Buffett it is “an average person who is not an expert on stocks”.
Leaving the concept or reality of "risk tolerance" out of Buffet's 90/10 recommendation leaves the "average investor" with partial knowledge that is actually harmful.

Dave
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Re: Buffett on Asset Allocation

Post by birdog »

Dave55 wrote: Thu Jan 14, 2021 12:05 pm
birdog wrote: Wed Jan 13, 2021 8:25 pm
Dave55 wrote: Wed Jan 13, 2021 7:46 pm
birdog wrote: Wed Jan 13, 2021 6:29 pm
Northern Flicker wrote: Wed Jan 13, 2021 5:40 pm I think Mr. Buffett was quite clear in the blog post. He thinks the concept of asset allocation is nonsense. I do not agree with him, btw.
Perhaps he doesn't feel it's too nonsensical as he has quite obviously recommended an asset allocation of 90-10 to the average investor as well as his future widow. Sometimes people speak out of both sides of their mouths.
What is an "average investor"? Not sure that entity exists, but if it does, please enlighten.

Dave
According to Warren Buffett it is “an average person who is not an expert on stocks”.
Leaving the concept or reality of "risk tolerance" out of Buffet's 90/10 recommendation leaves the "average investor" with partial knowledge that is actually harmful.

Dave
I agree.
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