Question for Stock Buyers

[Redskins Diehard]

Going back to Buffet, and investing in general: stocks are simply pieces of ownership of a particular company.

Any person who buys a stock IS a business owner. I think a lot of people lose track of that when they buy stocks and just treat it as a "buy low/sell high" proposition. WB owns companies and, like any other owner of any other business, he gets to keep some of the profits.

Now how come there aren't more WBs? His methods aren't really secret and actually very public about what he looks for in companies he buys.

You really only get to "keep some of the profits" if you own stocks that pay dividends. Stock price is not always directly related to profits. Some stocks go up when losses weren't as bad as expected and go down when profits weren't as good as expected.

There are a lot of people that do the same thing as Warren does. Just like there were a lot of people that did what Michael Jordan did.

[techboy]

Now how come there aren't more WBs? His methods aren't really secret and actually very public about what he looks for in companies he buys.

It's because he's a business genius. He told a funny story in the same Q&A I quoted earlier:

I was born wired to allocate capital well. If I was born in Bangladesh and I walked down

the street explaining that “I allocate capital well”, the townspeople would say “get a job”.

Bill Gates says that if I was born 1000 years ago, I wouldn’t survive because I am not fast or

strong. I would find myself running from a lion screaming “I allocate capital well!!”

[mikeDinNYC]

apple is a rocket... buy it and run with it... note short term technical support levels and trail a stop as it rises... sell the stops and buy back in when it shows solid support above that level... the company continues to innovate and come up with additional revenue streams... it is a huge moneymaker and very easy to swing trade.

[techboy]

apple is a rocket... buy it and run with it... note short term technical support levels and trail a stop as it rises... sell the stops and buy back in when it shows solid support above that level... the company continues to innovate and come up with additional revenue streams... it is a huge moneymaker and very easy to swing trade.

You're in the wrong thread. You need to post that here.

[Redskins Diehard]

You're in the wrong thread. You need to post that here.

I'm trying to figure out how to run with the rocket? "MikeD" sounds a little like "McD". Of course I only mean the way in which you pronounce the 2names

[Fergasun]

I guess here's another question, why stocks over bonds? As I get older and understand what I'm ultimately buying, I think bonds are a better buy. Sure, there is less upside; however stock-holders can get wiped out, whereas bondholders should receive at least something in return.

[chipwhich]

I guess here's another question, why stocks over bonds? As I get older and understand what I'm ultimately buying, I think bonds are a better buy. Sure, there is less upside; however stock-holders can get wiped out, whereas bondholders should receive at least something in return.

OK I have some company bonds I want to sell you. I promise they will give a nice return

[techboy]

I guess here's another question, why stocks over bonds? As I get older and understand what I'm ultimately buying, I think bonds are a better buy. Sure, there is less upside; however stock-holders can get wiped out, whereas bondholders should receive at least something in return.

In the long run, stocks are riskier, so they pay more. If you can meet your future needs and desires using mostly bonds, it's a good way to go.

I wrote "mostly" because if a person buys, holds, and rebalances, a 20/80 stock/bond ratio has been shown to historically have actually less risk (and better return) than 100% bonds (partly because having another asset class to rebalance into and out of can reduce volatility of the overall portfolio).

Also, stocks tend to be more favorable tax-wise, unlike most bonds that throw off lots of taxable income, so if you're holding in taxable, that's another consideration.

Do keep in mind also that bonds are not without risk (except, essentially, US Treasuries). They may get paid before stockholders, but in a really bad situation, you might get only some (or nothing) of your investment back.

[Elessar78]

You really only get to "keep some of the profits" if you own stocks that pay dividends. Stock price is not always directly related to profits. Some stocks go up when losses weren't as bad as expected and go down when profits weren't as good as expected.

There are a lot of people that do the same thing as Warren does. Just like there were a lot of people that did what Michael Jordan did.

Right, and I said that in my post that "he gets to keep some of the profits"... without going into the details of it, I think it's safe to say that WB receives financial compensation based on the performance of the company. That's why he buys that company in the first place.

The second part of my post was a rhetorical. He had a very enlightening quote about what society values. I can't find it so I'll paraphrase: He said that a good teacher might get a card at the end of the year. A grateful nation gives a soldier a medal. But since he can spot a mispriced stock, he get's rewarded with ridiculous sums of money.

Techboy, I think that idea of him allocating capital well is one of the main driving themes in the book Outliers. For all our belief around the mythology that all of us are self-made and got to where we are by striving, very few acknowledge the role random luck plays into it. WHEN you were born, WHERE you were born, WHO your parents were all make a difference towards the final outcome. Wasn't WB's father an investor/stock broker by trade? A lot of lessons can be learned at a young age that creates a built in advantage compared to people who don't start studying it until they are 18. It happens regularly in sports too where kids whose parent is a good coach in a particular sport.

[Elessar78]

I guess here's another question, why stocks over bonds? As I get older and understand what I'm ultimately buying, I think bonds are a better buy. Sure, there is less upside; however stock-holders can get wiped out, whereas bondholders should receive at least something in return.

James Carville has said he wants to be reincarnated as the bond market.

[Hubbs]

I guess here's another question, why stocks over bonds? As I get older and understand what I'm ultimately buying, I think bonds are a better buy. Sure, there is less upside; however stock-holders can get wiped out, whereas bondholders should receive at least something in return.

Think about this in a different way.

"I have an investment, which mathematically can't go up past a certain point. That point has pretty much been reached. It's like buying a stock with a crappy dividend, and that stock cannot, through various mathematical rules, go up more than a slight amount over its current value - yet I still feel excited with the purchase."

That sounds stupid, no? But that's when you're buying when you buy a bond in the current investment climate.

[Redskins Diehard]

Right, and I said that in my post that "he gets to keep some of the profits"... without going into the details of it, I think it's safe to say that WB receives financial compensation based on the performance of the company. That's why he buys that company in the first place.

The second part of my post was a rhetorical. He had a very enlightening quote about what society values. I can't find it so I'll paraphrase: He said that a good teacher might get a card at the end of the year. A grateful nation gives a soldier a medal. But since he can spot a mispriced stock, he get's rewarded with ridiculous sums of money.

Okay, I was just responding to two points that you made in that paragraph. 1) All stock owners are business owners. 2) All business owners get to keep some of the business profits. That could lead some to believe that "all stock owners get to keep some of the business profits"

In the case of Buffett earning money from companies he "owns" that really isn't the case. He is notorious for having a ridiculously low salary(100,000). He makes his money in the form of dividends, piles and piles and piles of money from dividends. And since he has tons of cash on hand and business often need cash he is able to work deals that people without billions of dollars laying around can't. Preferred stock which pays dividends that we could only dream of.

One other distinction to note is that Buffett himself does not own these companies. He is the principal shareholder of the company(Berkshire) that owns those companies.

[techboy]

That sounds stupid, no?

No.

Bonds are all about safety and stability. The investor in bonds gets a lower, much more stable return, with less risk. At least a part of an investor's portfolio should be in bonds, if for no other reason than to give something to rebalance in and out of. I'm about as aggressive as one can get in my stocks/bonds allocation, and I'm still at 80/20 because research shows that historically, going beyond that only increases risk without increasing return.

Moreover, if an investor intends to retire at some point, by that time a good chunk had better be in safe bonds, because it means that there will be a stable source of money to draw from should retirement occur in a down market. Bonds allow an investor to give stocks time to recover.

Your logic works with junk bonds, which provide equity-like risk. Bonds should represent the safe side of the portfolio, which is why I personally only use Treasuries and TIPS.

Another advantage of bonds is that they allow one to know exactly what the return will be (minus a bit of risk), and over a specific time frame, allowing one to match assets with coming liabilities. Can't do that with stocks.