Warren Buffett

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Re: Warren Buffett

Post by jacob » Sat Feb 17, 2018 4:55 pm

Networth is a kind of proof of work, but it's mostly a kind of proof of meeting demand that's not met by supply. For example, I'd have gone head-to-head against any surgeon making $250,000/year against my $25,000 as an astrophysicst in terms of work-load. However, it's also clear that demand for papers about neutron stars is much much smaller than the demand for brain or plastic surgery. Understandably so. There's about 5 people in the world demanding knowledge about neutron stars at the esoteric level I was supplying it at.

It goes back to a clarification I added to my original post after you responded, namely:
jacob wrote: IOW, real investors are in the business of allocating capital so that the supply meets the demand. (Now we can argue who is to blame if consumers demand stuff that's bad for themselves ... and investors supply it ... where does responsibility begin and end here?)
This is a complex dynamics. From an ecological standpoint, it's quite evident that the current situation is quite unsustainable and there's a risk that human carrying capacity will be cut on half or even to one quarter over the course of this century... clearly that much die-off is "bad for society". But then again, maybe that's just my opinion, because "what" is society after all. Many people tend to think about themselves first, and then about their family second, and do not go beyond this. So many people actually do not care about what they do for society---only what society do for/to them. And market supply/demand intersections reflect that.

So being pragmatic about this ... Here we are in 2018 with a surplus of money because our personal demand reflects this. What to do with the extra money? Burn it? Invest it "ethically"? One could even argue that investing it in shite-projects in order to destroy future demand is a good idea or at least thinking somewhat further ahead than the next quarter. One could also argue that more wealth will free more minds to think about solutions, but that ship has pretty much sailed by now.

And all that's before even starting to consider what advertising does to the whole curve.

Clearly there are some ethical concerns here ... but most people act as if they don't have those.

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Re: Warren Buffett

Post by Gilberto de Piento » Sat Feb 17, 2018 7:41 pm

Being contemptuous of the rich is like being contemptuous of Michael Phelps for being good at getting Gold Medals. Michael Phelps spent hours in cold water practicing his craft so he could get Olympic Gold. Rich people spend the same amount of time figuring out how to provide the goods and services that will get them their Olympic Gold medal which is cash. I guarantee that anyone who hates the rich has never spent any time with anyone of significant wealth. I highly doubt many would put in the hours, or risk their private capital, to be in the top 1% or even top 10%.
Your value to society can be closely discerned by your NW because it shows how much value you've added minus the value you've taken away by spending it.
I think you guys are forgetting about all the rich people who did nothing to get there. I don't have any data (maybe someone can research this) but when I think about rich people I've come in contact with (let's say the line is something like having $5m in assets, so they are pulling in $200,000 per year using the typical 4% math used here) at least half of them inherited the money. Sometimes the previous generation did the work, sometimes the one before that, and sometimes it goes back a long ways.

I'll be contemptuous of the rich a little. Again using my own sample, many of the rich seem to contribute outsized amounts to pet political causes that have serious impacts on other people. I'm tired of people having more influence just because grandpa was good at building condos or whatever. It's "interesting" to see people who never had to think about money and got bailed out every time they made a mistake talk about how stupid poor people are and how they need to pull themselves up.

Jacob makes good points about indexing. I think it's headed for some sort of trap but I'm not smart enough to know what. I personally need to work on diversifying away from it.

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Re: Warren Buffett

Post by arcyallen » Sat Feb 17, 2018 11:00 pm

Gilberto de Piento wrote:
Sat Feb 17, 2018 7:41 pm

I think you guys are forgetting about all the rich people who did nothing to get there. I don't have any data (maybe someone can research this) but when I think about rich people I've come in contact with (let's say the line is something like having $5m in assets, so they are pulling in $200,000 per year using the typical 4% math used here) at least half of them inherited the money.
I think it's easy to get that impression, but I'm positive much less than half of "the rich" inherited their money. If you read The Millionaire Next Door (which I strongly recommend), they illustrate it's a lot of hard work and willingness to do what others don't want to do. Unfortunately the vast majority of the exposure we get of "the rich" is from media, etc. Of the relatively few rich people I personally know, every single one of them earned their money by providing goods and services to others, and kept more of it by spending it wisely.

As for Warren Buffet, there are few people/companies that I have 100% faith in their ethics. He's one of them.

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Re: Warren Buffett

Post by Campitor » Sun Feb 18, 2018 12:01 am

I think you guys are forgetting about all the rich people who did nothing to get there. I don't have any data (maybe someone can research this) but when I think about rich people I've come in contact with (let's say the line is something like having $5m in assets, so they are pulling in $200,000 per year using the typical 4% math used here) at least half of them inherited the money. Sometimes the previous generation did the work, sometimes the one before that, and sometimes it goes back a long ways.
To be clear - your rationale for being contemptuous of the rich is that they inherited their wealth and did nothing to deserve or acquire it? What makes this so bad? This reeks of envy and jealousy. What is the logical basis for this contempt? If you live in any western society, European or American, you have inherited something you didn't work for. We are all beneficiaries of past actions that we had ZERO to do with. So should we hate ourselves? Should we be mad that we are residents of democracies that live better than 80% of the planet?
I'll be contemptuous of the rich a little. Again using my own sample, many of the rich seem to contribute outsized amounts to pet political causes that have serious impacts on other people. I'm tired of people having more influence just because grandpa was good at building condos or whatever. It's "interesting" to see people who never had to think about money and got bailed out every time they made a mistake talk about how stupid poor people are and how they need to pull themselves up.
So you're upset that the rich have more influence than you because they have the money to buy it? If you had the power to influence your life and mold the government to your belief system, you wouldn't do so? And being rich disqualifies them from having an opinion on how to improve their own life and the life of the poor? Wouldn't someone who is rich be in a better position to counsel the poor on their negative habits that impact net worth and skill acquisition?

So is the equation inherited wealth = evil and wealth via effort = good? And is virtue guaranteed if you're not rich? Or is it possible that rich people and poor people, who are living within circumstances not of their own making, can have valid opinions and actions that are beneficial to society? Logic and identity politics are not good bed fellows.

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Re: Warren Buffett

Post by Gilberto de Piento » Sun Feb 18, 2018 8:54 am

You guys read so much into my words that isn't there that I don't think we can talk about this. I'm bowing out.

Unrelated, here is an article about Buffett's son and how much Warren Buffett has or has not helped him over the years. I found it interesting:
https://www.npr.org/templates/story/sto ... =126538348

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Re: Warren Buffett

Post by Campitor » Sun Feb 18, 2018 11:14 am

Gilberto de Piento wrote:
Sun Feb 18, 2018 8:54 am
You guys read so much into my words that isn't there that I don't think we can talk about this. I'm bowing out.

Unrelated, here is an article about Buffett's son and how much Warren Buffett has or has not helped him over the years. I found it interesting:
https://www.npr.org/templates/story/sto ... =126538348
Nice article. Peter Buffet states his parents and grandparents were warm and kind. That he only got 90K in seed money to help him in life and nothing else in monetary assistance. He also states that people are generally good but that prejudice exists in every corner and people should be on guard against it. He also said his father Warren Buffet gave him and his siblings 1billion each so they could donate it to the charities of their choosing. There is so much in that article that refutes identity politics and the benefits of kindness and wisdom regardless the source. I guess the ultra rich people are like the rest of us - there are some that are bad but most are generally good and not all of them were given golden tickets in life despite the narrative presented by those who play identity politics.

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Re: Warren Buffett

Post by 7Wannabe5 » Mon Feb 19, 2018 8:15 am

jacob wrote:So being pragmatic about this ... Here we are in 2018 with a surplus of money because our personal demand reflects this. What to do with the extra money? Burn it? Invest it "ethically"? One could even argue that investing it in shite-projects in order to destroy future demand is a good idea or at least thinking somewhat further ahead than the next quarter. One could also argue that more wealth will free more minds to think about solutions, but that ship has pretty much sailed by now.

And all that's before even starting to consider what advertising does to the whole curve.

Clearly there are some ethical concerns here ... but most people act as if they don't have those.
Well, the highest net worth human ever was Genghis Khan, so direct correlation of Net Worth with Value to Society requires at least a bit of context. Also, I might be wrong, but I would theorize an initial positive feedback loop between investment in particular project and efficiency of that particular project. For instance, it was a forgone conclusion that a large city was going to be built in the MIdwest in order to exploit the abundant natural resources of the region, but up to a point in the process, it was like the available venture capital was moving around all over the board waiting for some kind of sign that the roulette wheel had come to a final stop. So, I would imagine that if the Warren Buffet of that era had been overheard saying something like "Chicago is where I am going to place my bet.", that would have had some influence on the outcome?

Also, "free market" is an idealistic model which is not necessarily reflective of reality, and the line between public and private enterprise will therefore often be like the chaotic edge between forest and mowed field. For instance, Amazon initially derived great benefit from an exception in the retail tax code, and my little rare book business derived benefit from the surplus/waste of the public library and university systems. Rockefeller's (another top 20 net worth human of all time) Khan-like campaign to eliminate any and all inefficiencies (or maybe more like volatility) in the early petroleum era, was only stopped or slowed when he hit the hard disequilibrium between the public policy of Texas and the rest of the U.S. (Pennsylvania small producer wells being roughly analogous to some of the first conquered land females impregnated with the sperm of Khan and his 80-something sons.)

Anyways, one possible answer to the pragmatic ethical dilemma you pose above might be to invest your money where you spend your time, because ethics are more difficult (information expensive) for humans to do at a distance.

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Re: Warren Buffett

Post by Farm_or » Mon Feb 19, 2018 9:36 am

Thanks to everyone for contributing to this thread. There's some awesome thought provoking ideas and I have learned a few things.

I can appreciate the explanation of the warped definition of risk. We have all been influenced by the powerful financial industry. It's refreshing to look at that idea from the perspective of those that have a better understanding of investment. I don't imagine Mr. Buffet looking at a simplified risk designation when he is contemplating an investment.

Opposites seem to be a good tool for comparison. When we are talking about a free enterprise and capitalism, the usual alternative is communism. I appreciate that there is always room for improvement and there will never be a perfect system. It seems to me that it took a little bit of communism to rescue pure capitalism. The same observation can be made of communist systems that have survived the ages.

To the point of better benefitting society by doing more of what we want and less of what we are paid the most to do is a big reason why most of us are on this forum. Having crossed that divide five years ago - thanks to the free enterprise, capitalism, and handful of multimillionaires that employed me! I knew pretty well and interacted with a few. "The rich could benefit learning how the poor live, the poor can benefit learning how the rich work."

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Re: Warren Buffett

Post by Campitor » Mon Feb 19, 2018 10:15 am

Farm_or wrote:
Mon Feb 19, 2018 9:36 am
"The rich could benefit learning how the poor live, the poor can benefit learning how the rich work."
Yes to this 1000x over.

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Re: Warren Buffett

Post by Tyler9000 » Mon Feb 19, 2018 11:11 am

jacob wrote:
Sat Feb 17, 2018 3:05 pm
It would be a pretty dumb entrepreneur/investor who takes risks with their money. This whole risk-reward connection is a concept peddled by modern portfolio theory in which risk equals random price volatility. Now that [volatility] is applicable if you're managing a mutual fund and have to match inflows and outflows of customer money as a prime concern ... but that's not a good way to think about principal/your own money at all!

Your job as an investor is to seek the highest returns with the smallest risk of losing money.
Big +1 to that last statement.

Yeah, as the resident index investor I'm equally irritated by how MPT warps the idea of risk. But I'll simply point out that not all indexers think that way and that the risk-reward mindset is not limited to index investors. Value investors may not think in terms of standard deviation, but plenty of people push the limits of responsible risk taking in the search for greater returns.

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Re: Warren Buffett

Post by trfie » Tue Feb 20, 2018 12:43 pm

Mister Imperceptible wrote:
Sat Feb 17, 2018 12:47 pm
I’m not criticizing Buffett, I’m not saying he never took risks. I’m saying the current system makes it too easy for him. He broke through a plateau where now he sitting with $100 billion in cash and waiting for the next drop. It’s probably a benefit to society, because that’s $100 billion less that the Fed needs to print if and whenever the market crashes again, but that’s another topic.
Buffett can do what NO ONE else in the world can do. With a population in the billions, that is an incredibly rare combination of talent/ability. How can you possibly say that the current system "makes it too easy for him"? If it were really true, then others would have been able to do what he has done. Has the system made things too easy for Lebron James? What about Elon Musk?

But let's look at your claims that "the system" is a problem. More accurately, there are problems with the current system, but it's straightforward to see why these problems exist - government. Basically every argument in the article you linked is pure rubbish:

Why were the 3 rating agencies, including Moody's, so far off (in some cases underestimating risk by 200 TIMES)? In fact, there are a plethora of rating agencies, but these 3 had preferential treatment from government:
https://www.mercatus.org/publication/br ... strys-role

Why are there the monopolies that you protest against? Government. There are zero monopolies over the long term without government intervention, due to preferential treatment to one group or company or industry at the expense of others.

Why is there the so called airline monopoly described in the article you linked? Government intervention. There are restrictions on ownership of American airlines, which is why Branson only could have partial ownership in Virgin America. There are huge costs in terms of various security measures that drives up the cost of airline tickets, without much (any) data to show effectiveness of many of the measures, including body scanners. There are personal (market) forces that determine which airlines win. Plenty of low-cost carriers exist, but they only remain in business if they get customers.

Buffett is absolutely right that the deficit could be ended if Congress wanted to. Look at how much funding from special interest groups the Democrats and Republicans receive. It is not surprising that they consistently pass legislation to help the special interests at the expense of the population. And then people blame exemplars like Warren Buffett who is giving away 99% of his wealth to charity (but he could not be blamed if he was not doing that - he and others have done far more to alleviate poverty while the effect of government has been to increase poverty).

Regarding "breaking through a plateau". He is completely self-made. He started with nothing and has steadily increased his net worth from that point until today. There was no "plateau" that he broke through. He is not sitting on anything, the dollar has lost 12% of its value in the past year, and it could continue further, so holding cash is not safe. There is no free lunch.

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Re: Warren Buffett

Post by Bankai » Tue Feb 20, 2018 1:36 pm

trfie wrote:
Tue Feb 20, 2018 12:43 pm
He is completely self-made. He started with nothing and has steadily increased his net worth from that point until today.
Although it's technically correct that he made his money himself, I wouldn't really call him completely self-made. He's from an influential family (his father was a congressman) which helped him get a great education and he was making a 6 figure salary (in today's $) at Ben Graham's company at the age of 22. He certainly was dealt way above the average hand. Would he have achieved the same level of success if for example he was born in a poor family and had illegible parents? Maybe. What about if he was born in any African country? Or in Europe where he'd likely live his teen years under either German or Russian occupation and had a good chance of not even making it to his 15th birthday?

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Re: Warren Buffett

Post by Campitor » Tue Feb 20, 2018 5:58 pm

Bankai wrote:
Tue Feb 20, 2018 1:36 pm

Although it's technically correct that he made his money himself, I wouldn't really call him completely self-made. He's from an influential family (his father was a congressman) which helped him get a great education and he was making a 6 figure salary (in today's $) at Ben Graham's company at the age of 22. He certainly was dealt way above the average hand. Would he have achieved the same level of success if for example he was born in a poor family and had illegible parents? Maybe. What about if he was born in any African country? Or in Europe where he'd likely live his teen years under either German or Russian occupation and had a good chance of not even making it to his 15th birthday?
None of us are self-made. We are all standing on the shoulders (for better or worse) of those who came before us. Who cares about the "what-ifs" pertaining to Warren Buffets parentage and country of birth. Buffet accomplished his current net worth with skills developed through his own passion; his success has far exceeded the gifts bestowed upon him by his parentage and inherited economic strata.

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Re: Warren Buffett

Post by Farm_or » Tue Feb 20, 2018 6:44 pm

"Outliers" by Malcolm Gladwell.

It takes a perfect storm for individuals to achieve extraordinary success. Not withstanding personal sacrifice...

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Re: Warren Buffett

Post by Campitor » Tue Feb 20, 2018 9:07 pm

Farm_or wrote:
Tue Feb 20, 2018 6:44 pm
"Outliers" by Malcolm Gladwell.

It takes a perfect storm for individuals to achieve extraordinary success. Not withstanding personal sacrifice...
If that is the case, and it's as simple as Gladwell describes, and universally applicable to every act of extraordinary success, then Warren Buffet has been riding that perfect storm for decades: https://www.thebalance.com/warren-buffe ... ine-356439.

If his success is really fluke after fluke of perfect storms then Warren Buffet is a lightning rod for luck. :roll: I would reexamine this overly simplistic explanation for this man's success.

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Re: Warren Buffett

Post by Bankai » Wed Feb 21, 2018 3:08 am

No one is saying that Buffet was continuously lucky in his investing for the last 60 years. However, he certainly got extraordinarily lucky being born in the right place, at the right time, in the right family, with the right sex and sexual orientation, with the right (extraordinary) level of intelligence, having a chance to get very good education, and meeting and working for the right person (Graham) very early in his life. Change any of these and the outcome could be totally different. This is in no way diminishing his personal achievements, talent and hard work. After all, many other people had equally good start in life and never achieved anything (meaningful).

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Re: Warren Buffett

Post by Campitor » Wed Feb 21, 2018 7:35 am

Bankai wrote:
Wed Feb 21, 2018 3:08 am
No one is saying that Buffet was continuously lucky in his investing for the last 60 years. However, he certainly got extraordinarily lucky being born in the right place, at the right time, in the right family, with the right sex and sexual orientation, with the right (extraordinary) level of intelligence, having a chance to get very good education, and meeting and working for the right person (Graham) very early in his life. Change any of these and the outcome could be totally different. This is in no way diminishing his personal achievements, talent and hard work. After all, many other people had equally good start in life and never achieved anything (meaningful).
And I have to disagree with you. Oprah Winfrey's background is the total opposite of Warren Buffets but is worth 2.9 billion dollars. Perhaps hard work creates it's own luck or at the very least opens additional vectors in which luck may trickle in. Warren Buffet only met Graham because he actively went to Graham's company building and kept knocking on doors until a janitor let him in. No effort = no luck. I vehemently oppose the idea that a perfect storm of events is required to achieve great things or extraordinary things as if this explains the preponderance of someone's success.

15 Billionaires Who Were Once Dirt Poor

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Re: Warren Buffett

Post by Farm_or » Wed Feb 21, 2018 8:16 am

You are right. Most of the credit belongs on the person. But there are factors in a person's development that contribute to that success.

Every person on your link came from humble beginnings. "Something" triggered inside of them that was a driving force that contributed to their success. What about the thousands of others just like that who don't realize wild success? Most every immigrants that I know are all very hard workers. It's more than one or two things, it's like a recipe with the right ingredients, temperature, time, pressure, and humidity - I am still missing something. Maybe that is what you are saying? The chefs deserve the accolades.

We would all like to be the next. Or at least, a little slice of the pie. So what can we learn to influence our behavior and increase our odds? It's going to be a little different for everyone.

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Re: Warren Buffett

Post by Campitor » Wed Feb 21, 2018 8:54 am

I agree that hard work by itself isn't enough otherwise all the ditch diggers of the world would be billionaires. Hard work + deliberate planning + deliberate learning + sacrifice + not staying at a low level plateau is what is required; think of 10k+ hours of deliberate practice as a corollary. None of this requires "luck". I understand that circumstances will dictate how much luck you encounter in life, i.e., being born in a country that forces kids to become child soldiers or doesn't respects liberty and property rights. But if you live in a western democracy, where luck abounds, and you explain away success as a series of fortunate events, you are doing yourself and others a disservice by promulgating a philosophy that is antithetical to realizing success in the western world: I can only be greatly successful if I get lucky - I can't control luck so why even try...

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Re: Warren Buffett

Post by 7Wannabe5 » Wed Feb 21, 2018 9:01 am

I don't exactly grok why you guys want the responsibility of having to take care of more money than you need or want? I like my multi-millionaire friend who grew up as one of 13 kids on a farm and was unemployed and eating out of a dumpster at one point in his 20s, and I find him very interesting, but I don't envy him. I guess because he seems a little bit more like a 3 trick pony, than a Renaissance person. Most people find themselves more stuck due to impulsivity, but there are people who get stuck in compulsivity. My friend also checks his blood pressure about 1000X more often than the average human. Why is he worth nearly $100,000,00? In good part because he can't not try to turn a nickel into a dime. Of course, I think he is also motivated by the fact that the game does change somewhat at higher levels, so new curve to conquer there. Different strokes for different folks.

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