Buffett Buffet

[bubbalouie]

Watched Buffet on CNBC today; he said investors should buy low-cost etf's for their portfolio; i'm not sure if he's saying:

1. he was lucky when he had "picked" stocks
2. he doesn't think people are as smart as him and can replicate him
3. he thinks investors should follow the crowd and hold for the long term

I won't bring up his poor performance the past 7-8 years because I know there are avid followers of this "guru."

[Bylo Selhi]

Most investors ... will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals. [From 1996 Letter to shareholders]

By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb. [From 1993 Letter to shareholders]

Of course, if you're smarter than he is,...

[bubbalouie]

only 36 mins. to respond; i thought it would be sooner to tell you the truth, considering the number of Buffett fanatics here

smarter? Maybe, I don't know, all I can tell you is I've beaten his portfolio handily; i see he's made 50% the last 5 years and nothing the 4 years before that; sorry if i don't bow in respect

[pooky]

The sheer size of Berkshire severely limits the universe of securities he can invest in. A few hundred million barely moves the needle. I would say the individual investor is one up on him in this regard.

I would love to see the returns on Buffetts personal portfolio. He has publicly stated as recently as the late 90's that he would be able to make 50% per year on a small portfolio.

Anyhow, I know of no investor with a better long term track record (50+ years) than Mr. Buffett. And in the long run, the long term record is really all that matters.

-pooky

[yielder]

i see he's made 50% the last 5 years and nothing the 4 years before that;

FWIW, I'm not a Buffett fanatic. In fact, there are some things such as his belief in concentration with which I strongly disagree.

[Bylo Selhi]

Buffett says index funds better for most investors

A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money. The gross performance may be reasonably decent, but the fees will eat up a significant percentage of the returns. You'll pay lots of fees to people who do well, and lots of fees to people who do not do so well.

Successful [actively-managed] funds attract a massive amount of money, and the later performance typically gets mediocre. Then they keep publishing returns for the whole period for someone who started 20 years ago.... The reporting has falsehood and folly in it.

Buffett gives nod to index funds over ETFs

The best way in my view is to just buy a low-cost index fund and keep buying it regularly over time, because you'll be buying into a wonderful industry, which in effect is all of American industry. If you buy it over time, you won't buy at the bottom, but you won't buy it all at the top either... If you have 2% a year of your funds being eaten up by fees you're going to have a hard time matching an index fund in my view. People ought to sit back and relax and keep accumulating over time."

[Jaunty]

I like the article, but the gist of Buffett's concern is the pressure (or desire) to trade that can happen with ETFs but not funds.

The article says:

The world's most celebrated investor has nothing against exchange-traded funds, but given a choice he recommended sticking to plain-vanilla and low-cost index mutual funds because the temptation to engage in potentially self-destructive trading isn't as great.

Buffet says:

"I have nothing against ETFs, but I really think an index fund that just charges a few basis points for management is pretty hard to beat," Buffett said. "You put it away, you have nobody encouraging you to trade it next week or next month ... your broker isn't going to be on you."

[martingale]

If we had mutual funds in Canada priced as low as those available to US investors there would be no reason for Canadians to buy ETF's. For a Canadian the only way to access the ultra-low US mutual fund rates is to buy US ETF's, unfortunately.

[Bylo Selhi]

If we had mutual funds in Canada priced as low as those available to US investors there would be no reason for Canadians to buy ETF's.

Not necessarily. Both Buffett and Bogle clearly argue that it's hyperactive investor behaviour — not some structural characteristic of ETFs — that makes them prefer conventional index funds. So IF investors can control their behaviour, I think it's fair to infer that B&B would have no problem with ETFs. They might then even prefer them for their lower fees and potentially higher tax efficiency. Of course, for all-too-many, that's an awfully big IF.

[patriot1]

I really don't see where the "if" is coming from. The point is that I'm putting my money into index funds precisely because I'm in for the long term and not interested in short term trading. So what on earth does it matter how easy it is to trade an ETF if I'm not interested in trading?

And note also that an ETF incurs no costs at all for an investor trade, unlike a no-load mutual fund. Seems the latter is more likely to be adversely impacted by excessive trading, which is exactly why many of them impose limits on it.

[Bylo Selhi]

I really don't see where the "if" is coming from.

Bogle cites the astronomical trading volumes of ETFs to argue that many, if not most, people who use them are active traders, not buy-and-holders. He cites various ETF sponsor ads that tout the ability, in contrast with open-end funds, to trade throughout the day. He decries the incessant introduction of ETFs that track narrower and narrower market segments, often in reaction to recent outperformance of those segments that isn't likely to be sustainable. He contends that when [hyper]actively-traded, ETFs are much worse than open-end index funds. His notion of passive investing using broad-based low-cost index funds is the antithesis of day-trading ETFs.

The point is that I'm putting my money into index funds precisely because I'm in for the long term and not interested in short term trading. So what on earth does it matter how easy it is to trade an ETF if I'm not interested in trading?

Me too. The point is that apparently all-too-many people who use ETFs don't invest as we do. The point is that for them ETFs and the brokerage industry that promotes them are like gambling at casinos rather than a rational, disciplined approach to investing.

Seems the latter is more likely to be adversely impacted by excessive trading, which is exactly why many of them impose limits on it.

Correct. As a disciplined individual you (and I) can be smug in our ability to benefit indirectly from the folly of others. But as respected advocates for individual investors, Bogle (and Buffett) have a responsibility to warn people of the serious pitfalls of excessively trading ETFs.

Added: Another caution about another potential consequence of the "huge land grab." Survival of the Fittest: Finding An ETF With Staying Power

I may be going out on a limb here, but I'm not convinced the world needs 39 exchange-traded index funds devoted to health-care stocks. These are heady days for ETFs, those index funds that trade on the stock market just like any other share. Fund sponsors are launching new ETFs by the fistful, hoping to snag a slice of this fast-growing market. This, of course, means more choice for investors. But you've got to wonder: Could the abundance of fund choices drive out the weaker players -- and could investors end up getting hurt?...

If your tech fund closes and you have to jump to another fund, you will face trading costs and possibly a steep tax bill. Even if your tech fund soldiers on, you could still suffer. A fund with few assets is unlikely to trim its annual expenses, something that's desperately needed with many of the newer ETFs. Some 70% of the funds launched since year end 2004 levy annual expenses of 0.5% a year or more. That's steep for an index fund.

My advice: Before you buy an ETF, make sure it has a decent amount of assets, preferably above $200 million. I would also favor ETFs from firms that have established themselves as leading ETF sponsors, such as Barclays, State Street and Vanguard Group. Presumably, these firms don't want to sully their reputation by closing a truckload of funds. Most important, favor the lowest-cost funds in each category, because these will likely prove most popular over the long run. To find low-cost funds, try morningstar.com. "You need to recognize that there are a lot of these crazy niche funds and you want to avoid them like the plague," says Russel Kinnel, Morningstar's director of fund research. "You want to look for low-cost, well-diversified funds. If you start by screening for the lowest-cost funds, you should end up with funds that will be around for a good long while."

[George$]

The 2007 Berkshire Hathaway Annual Meeting- Top 20 Questions - a 17-page pdf file.
From the intro ....

During the question and answer portion of the 2007 Berkshire Hathaway annual meeting,
shareholders asked Warren Buffett and Charlie Munger a total of 54 questions. Some
questions were more pertinent to investors than others, so in order to focus on the most
relevant questions and answers, we have selected 20 for closer review. Although this
article is billed as “The Top 20 Questions,” we don’t presume to judge the questions per
se, or the answers. We simply selected the questions and answers we considered to be
the most helpful for individual investors. In addition, although Buffett and Munger need
no clarification, we’ve supplemented their answers with elaborating comments.

[George$]

To add the 2006 discussion to the above for 2007 (from the same source) ...
The 2006 Berkshire Hathaway Annual Meeting - Top 20 Questions

[par4]

I noticed to-night on CNBC that they will have Buffett on Monday night May28 th

[kcowan]

The 2007 Berkshire Hathaway Annual Meeting- Top 20 Questions - a 17-page pdf file.companies’ financials.

Put differently, that which is impossible in reality becomes possible in audited financial statements.

One of the more sobering quotes for those of us comfortable with due diligence!

[George$]

Belatedly I realize that similar summaries of the Berkshire annual meetings for 2005 and 2004 (as well as 2007 and 2006) are all available via the Brundi Commentary web site
http://www.jvbruni.com/commentary.htm

[Bylo Selhi]

Sidekick has sage advice of his own

There are two great shareholder meetings in May: the love-in at Omaha at which Warren Buffett, the legendary head of Berkshire Hathaway Inc., entertains and explains his investment philosophy; and a session in Pasadena, Calif., at which Charlie Munger, Buffett's 83-year old sidekick (he is vice-chairman at Berkshire), regales the troops from Wesco Financial Corp., an 80.1%-owned subsidiary of Berkshire Hathaway. Munger is Wesco's chairman...

[WishingWealth]

At Clinton fundraiser, Buffett says taxes too low.
In USA Today

...
Buffett said he earned $46 million in 2006 and had a lower tax rate than one of the secretaries in his office, who earned about $60,000.

Central to Buffett's message was the notion that he and other privileged Americans — those who had drawn the "lucky tickets" — had an obligation to provide for those less fortunate.

"We have the chance in 2008 to repair a lot of damage," Buffett said. "We have a wonderful economy. The market system works in this country. Our problem is how we conduct ourselves in the world."

...

RE: those who had drawn the "lucky tickets"
I think he needs some advice; he got this wrong: The rich do not draw lucky tickets; they write a check for lobbyists who then get the Senate or Congress to hand over the winning tickets (tax oink*).

From:Rich got a lot richer in 2006; global wealth up 11.4%



WW

* Where did BYLO get this animated oinker feeding at the trough?

Added: CLEWI - a new acronym. (well; for me...)
A bystory)

INVESTMENTS OF PASSION

The world's rich devote about a quarter of their "investments of passion" to yachts, planes and other big-ticket collectibles and about a fifth to art, according to a rare breakdown of their spending.

The 2007 World Wealth Report estimated that 1.8% of their portfolios, or about $670 billion, was spent on what it called "investments of passion," which the study broke down for the first time.

The Merrill Lynch/Cap Gemini study said 26% of this amount went to luxury collectibles including yachts, airplanes and luxury cars and that demand for such goods is rising.

The study said Boeing had reportedly taken orders for 11 wide-body private jets, which were being customized as "mobile mansions."

In Europe, a quarter went to art, which is increasingly being seen as an investment at a time of record prices for old and contemporary work. Art also helped diversify portfolios because of its low correlation with the cycles of financial markets.

About 18% of "passion" spending went to jewelery, 14% to "other collectibles" such as wine, antiques and coins, and about 6% went to investments in sports such as buying teams, race horses or sailboats, the study showed.

Everyday living costs are also rising faster for the world's rich than for most folk.

The Cost of Living Extremely Well Index (CLEWI) rose 7% last year, outpacing 4% growth in the consumer price index. The CLEWI index consists of 42 luxury items such as helicopters, tuition at Harvard and Dom Perignon champagne.

[Bylo Selhi]

[Yukon Maiden]

The Cost of Living Extremely Well Index (CLEWI) rose 7% last year, outpacing 4% growth in the consumer price index. The CLEWI index consists of 42 luxury items such as helicopters, tuition at Harvard and Dom Perignon champagne.

Now that is an interesting index I will have to keep my eye on. I wouldn't want to plan a retirement intent on "living extremely well", just to be surprised by unforeseen inflation of "living extremely well" above and beyond the CPI.

[kcowan]

In response to a question about why Buffett recommends index funds to investors, he said that for "a know-nothing investor, a low-cost index fund will beat professionally managed money."

http://biz.yahoo.com/brn/070718/22612.html?.v=1

Another selected summary of their May 5th annual meeting.

[George$]

YouTube has 10 consecutive clips from Warren Buffett's lengthy discussion with MBA students at Florida.

Much wisdom and good financial advice from a great individual.

[Brix]

YouTube has 10 consecutive clips from Warren Buffett's lengthy discussion with MBA students at Florida.

Thanks for that. The guy seems tired and ill, but as bright, good-humoured, and funny as ever.

[j45]

George$.....I just got done watching. Thanks very much for that.

[$seeker]

George$ Thanks for the notice . I really enjoyed the presentations. What a genuine persona