8 ms·

“Bitcoin has no underlying rate of return,” said Bogle, 88, who started the first index fund in 1976. “You know bonds have an interest coupon, stocks have earni

“Bitcoin has no underlying rate of return,” said Bogle, 88, who started the first index fund in 1976. “You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.” Didnt quite understand this quote - is he down on gold too?

HarryHirsch 9y ago
At least gold is used in jewellery and electronics. What is bitcoin used for, except ransomware?
- tootie 9y ago
  I think you just convinced me to buy bitcoins.
  - vas123 9y ago
    I lol’ed
- taneq 9y ago
  Silk Road? :P
  - rebuilder 9y ago
    You jest, but go read bitcointalk.org's archives from a few years ago (and before) and I think you'll find that's exactly the purpose it seems expected to fulfill.
- VMG 9y ago
  Start to explore why bitcoin can be used for ransomware and other things cannot.
- StephenMelon 9y ago
  Well ransomware is a growth market...
- rebuilder 9y ago
  Money laundering. Illicit transactions. Any number of things government money stored in banks is not much good for. How big a market is that? I'm guessing much, much bigger than most people think.
  - HarryHirsch 9y ago
    You do ask how people ran their drug-and-weapons enterprises before bitcoin. You'd guess it was through shady lawyers, corrupt banks, tax oases and webs of mailbox holding companies all the way down. That's proven working. But with bitcoin you are stuck with the dozen shady exchanges. Any normal criminal would think it's too risky.
    - rebuilder 9y ago
      Isn't this like saying Uber can't compete with taxi companies because the old model is proven to work? I'm not able to tell you whether it's true or not, but the claim here is that Bitcoin removes a lot of the friction in illicit markets, so that you don't need to be a Colombian Don to sell cocaine.
    - kamaal 9y ago
      >>Any normal criminal would think it's too risky. Actually a simple Perl script would do. Plus if it comes down to that, those criminals can run their own exchanges.
  - kamaal 9y ago
    >>How big a market is that? The Black market in countries like India is large enough beyond our comprehension. Large enough that its mixed so well into everyday life, taking action on it could cause massive economic distress. Bitcoin is the next step in the game for these kind of things. Its like a dream come true.
wallace_f 9y ago
Bitcoin is not a traditional investment, it is a speculative one. Blockchain technology is not proprietary to bitcoin, so given this is fungible what value are you pricing in when buying bitcoin? Access to use bitcoin...
akozak 9y ago
I'm no financial advisor, but I'd fire the person who recommended I buy gold as a long term investment.
- alejohausner 9y ago
  Actually gold is a very good long term investment. Here are some year-end closing prices: Year gold S&P500 1972: 64 118 2015: 1060 2044 Ratio: 16.5 17.3 True, gold does not have a yield, but it has gone up a lot over the years.
  - kelnos 9y ago
    Cherry-picking two dates doesn't really tell us much. Volatility year-over year would be useful to see, and, as they say, past performance is not an indicator of future earnings. A decision to invest (or not invest) in gold should be based on your current expectation of the future.
    - candiodari 9y ago
      Ah come on. We both know that the basic claims about gold are true: 1) Gold returns, over the very long term, are roughly in line with S&P500 returns (but ... we're talking decades, as in plural). 2) in the short term Gold returns are essentially zero. With both the good and bad that comes with: almost no volatility, and when there is volatility, it's sudden large jumps up. The one that isn't well known: 3) Most governments prevented this investment from working when it mattered by (in the US case) outlawing gold. Other governments did different things with similar results. So Gold is a great investment, IF you're willing to wait 20+ years at least, and of course assuming you trust the government (the exact opposite of what most gold bugs will tell you).
      - chiaro 9y ago
        1) is hilariously off base. S&P500 has averaged about 10% nominal return, annual, since 1928. Gold returned a little under 5% nominal over the same period.
berberous 9y ago
Here is Warren Buffet's similar argument against gold from his 2011 annual investor letter [0]. The argument also applies to Bitcoin and other assets that are driven more by speculation than productive income streams: "The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century. This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future. The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end. What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.” Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B." [0] http://www.berkshirehathaway.com/letters/2011ltr.pdf http://www.berkshirehathaway.com/letters/2011ltr.pdf Edit: If you enjoyed the above excerpt, I'd recommend reading it in context, pp. 17 (start at the heading) through end of 19. I've excerpted only the middle part on gold, but he also explains the dangers of holding cash, and further explains why he favors productive investments.
slg 9y ago
Gold is certainly the ideal model for something like Bitcoin but in terms of projectable value gold has time on its side. I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.
- StavrosK 9y ago
  Pretty optimistic on your lifespan, I see.
- jfaucett 9y ago
  > Gold is certainly the ideal model for something like Bitcoin I disagree. I don't think Bitcoin should strive to be a store of value like Gold is. Today most Gold investing is just based on fear, because people see a government misbehaving and lose faith in its ability to maintain the value of its fiat and then flee to something that still has some properties useful in monies. This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction. > I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia. The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017. Gold pays no dividends, has no interests, does not appreciate over the long term, and can't protect against incident forms of inflation. On top of all that, it has none of the above mentioned technological advantages Bitcoin brings. There are arguments to be made for Gold but they are in its utility in modern industry, etc.
  - slg 9y ago
    >This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction. Those were/are all the main uses for gold for much of human history. Bitcoin has improved on or has potential to improve on those, but its relative volatility puts gold to shame. >The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017...There are arguments to be made for Gold but they are in its utility in modern industry, etc. I would argue the history of gold is the only reason to invest in it. It is extremely overvalued compared to its industrial and commercial uses. However its history shows it is a decent diversification vehicle to protect against loss of value of fiat currencies. This applies to the doomsday scenarios you alluded to in your comment as well as the less drastic economic downturns.
tedsanders 9y ago
Yes, Jack Bogle is down on gold too, calling it: "Speculation" with "no intrinsic value." And to credit Jack Bogle, six years after making that statement, gold is trading lower. https://www.newsmax.com/finance/InvestingAnalysis/bogle-gold-investing/2011/09/02/id/409548/ https://www.newsmax.com/finance/InvestingAnalysis/bogle-gold...
gfodor 9y ago
Large public companies that are unlikely to ever issue dividends or be acquired also fit this description. For those companies, there is no legit expectation of an investor capturing the underlying cash flows, other than on the capital gains from the market price of the stock being gauged against the current P/E consensus (or valuation metric of your choice.) But yet there AMZN, GOOG, and others sit, responsible for a large part of the return in Bogle's revered index funds.
- siglesias 9y ago
  This is slightly specious. There is an expectation that AMZN or GOOG will eventually issue dividends or repurchase shares, and there's noting fundamentally preventing them from doing so. There's no way to form a valuation otherwise.
  - deleted 9y ago
    [deleted]
  - gfodor 9y ago
    "Expectation" means that there is some probability <1 that they will return cash to investors on any given day. You have a finite time alive. It's not academic to conjecture that there's a very high probability that you, as an investor, will never see a yield on the capital of your investment. If you knew with 100% there will never be a buyback or dividend by AMZN while you are a holder of their stock, arguably you are making the same trade as someone buying bitcoin or gold: expecting someone else to come along (who perhaps expects to have a longer lifespan) to pay you more for the stock than you did. Note: I am not arguing that buying AMZN is a bad idea, I am saying that the argument that there is no "underlying rate of return" for bitcoin is a poor argument coming from someone who is also telling investors to buy those stocks, many of whom will certainly never see direct yield on their investment, just capital gains.
    - longerthoughts 9y ago
      >arguably you are making the same trade as someone buying bitcoin or gold I think the difference here is that people can intuitively justify changes in the value of a stock regardless of buybacks and dividends because company performance is a tangible, measurable factor (even if only by proxy of flawed but useful metrics). The value of gold is more vaguely determined by market perception/speculation (e.g. gold doesn't have quarterly earnings reports with detailed accounting). Ultimately something has value as long as people believe it has value, but I think the discomfort from folks like Bogle comes from the lack of a rigorous method for valuation vs. assets like equities.
themagician 9y ago
Sounds to me like he is just rambling a bit there at the end. Gold actually does have some intrinsic value—it's useful. It's stable, nonreactive, resistant to corrosion and conducts electricity. It's been used as a value store since antiquity above others particularly because it is stable and noncorrosive. The conducive properties are just an added benefit we now have a use for. A gold coin from a hundred years ago is still a gold coin. A Bitcoin from today may not be a Bitcoin as we know it a few years from now. And if it is, it may be difficult to transact. Bitcoin, on the other hand, really has no use. There was this idea that it might be used to speed up transactions but as we saw leading up to the fork, that's not guaranteed. Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. I think things like Ripple have a far higher value proposition than Bitcoin today—more of what Bitcoin once was.
- graeme 9y ago
  Botle was talking about return, not store of value. Gold holds value well, but its intrinsic value doesn’t really grow over time.
- stale2002 9y ago
  Well, the use case for Bitcoin is decentralized, censorship resistant, electronic transactions. Ripple is run using a different consensus algorithm, and is effectively managed by a central authority. The point of Bitcoin has very little to do with speeding up transactions, all though this isn't a negative. The point is sending transactions that are very difficult to censor. And yes, it does a very good job of this as there are a whole lot of transactions that governments would love to censor, but they AREN'T being censored, right now.
- epistasis 9y ago
  I doubt there's any room for gold in a Bogleheads' retirement portfolio. Or any other commodity. Or any individual stock.
- AndrewBissell 9y ago
  > Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. The amount of resources required to execute this attack is moving higher at a rapid pace. Also, a 51% attack can gum up new transactions and potentially double spend, at least until people realize the attack is happening and stop signing new transactions. It can't rewrite blocks from the distant past to send everyone's coins to the attacker's address.
nerdponx 9y ago
There is nothing to support bitcoin That's what I've been realizing latey: there is something to support Bitcoin, and that something is the blockchain. The reason banks and big financial companies are interested in it is not for its speculative value. They are interested in the fact that it is both decentralized and immutable. As long as financial corporations are willing to exchange Bitcoin for USD, then Bitcoin is a reasonable store of value. There's also value in Bitcoin because it's a good entry point into other cryptocurrencies that could turn out to be better general-purpose exchange media, like Litecoin. It's a bit like US Treasury Bonds. Nobody buys them for the tiny rate of return they offer, but they have genuine, valid use as a financial instrument. Normal people, however don't typically buy them, and normal people probably shouldn't be buying Bitcoin either unless they have some spare cash to gamble on it.
- jorblumesea 9y ago
  US Treasury bonds are backed by the military and economic might of a superpower, and the fact that it's an IOU that's almost bulletproof. That's a really big part of their value. It's the safest investment possible which is why governments funnel money into treasuries. Bitcoin just has the power of faith in the network and that liquidity will exist when you want to cash out. Neither of which is certain. Bitcoin really doesn't have any support. Exchanges don't have close to the liquidity needed to allow everyone to withdraw their coins in fiat currency.
  - thucydides 9y ago
    I've heard many people say this, and it seemed sensible enough at first. But on further thought, I sincerely can't make sense of it. Dollars are just green pieces of paper. We accept them for goods and services because... everyone ELSE agrees to accept them for goods and services. It's circular. How is the might of the US military relevant here? If you lived in South Korea, would you accept the South Korean won, or would you refuse your salary because their military is too weak compared to the United States? I would take my salary in South Korean won because all of my neighbors and strangers will take it in exchange for goods and services. Circular. The circular argument that cryptocurrency has value has turned into a self-reinforcing cascade. Ironically, because of network effects, the more users and speculators there are in Bitcoin, the more utility it actually has, because others will accept it as money. This - and the human tendency toward envious imitative buying - causes the price to rise even further. Cryptocurrencies are easier to secure and transfer than gold, which we only think has "value" because it's shiny and rare. Yet gold is worth $8 trillion. Why not crypto? (caveat: Bitcoin could fall precipitously in the short, medium, or long term. My argument is that cryptocurrency - Bitcoin, Ethereum, or something else - will be more valuable than gold in 10 years or so.)
jorblumesea 9y ago
Gold has practical uses in industrial applications and electronics. It also has a floor, which is the cost to mine and ship. Gold has a minimum theoretical value although I'm unsure off the top of my head how low that might be. Bitcoin's only value is what people will pay for it and has nothing backing it up. It's not really comparable.
- yters 9y ago
  Bitcoin is like a fiat currency without a fiat.
  - jorblumesea 9y ago
    and without central banking, top tier economists, monetary tools for a bailout, a military and government... It's really not much like a fiat currency at all. The closest thing might be penny stocks.
    - rhino369 9y ago
      Bitcoin has a central bank, it just made its decision ahead of time without regard to supply and demand.
  - IncRnd 9y ago
    Bitcoin is unlike a currency in that it is difficult to have a transaction, today, using bitcoin. That will hopefully change, but that is how things are today.
    - lostsock 9y ago
      How is it difficult to have a transaction?
      - IncRnd 9y ago
        I was referring to the time it takes to complete a bitcoin transaction in which confirmation lags significantly behind that of transactions in currencies around the world. https://blockchain.info/charts/avg-confirmation-time https://blockchain.info/charts/avg-confirmation-time https://blockchain.info/charts/median-confirmation-time https://blockchain.info/charts/median-confirmation-time
tryingagainbro 9y ago
Investors like him and Buffet see gold as something just sitting there. if you buy a company, they will increase earnings, market share etc. Gold just sits on a vault--which is a great thing for rich people to use a small % of their wealth for. Just in case. Gold has other uses and a 5000+ year history. Compare it to hundreds of coins out there
SilasX 9y ago
Bogle advocates buying broad stock and bond indexes[1], so yes, he's down on gold too. But that doesn't stop Vanguard from offering a precious metals and mining fund [2] or actively managed funds[3]. [1] https://www.npr.org/2015/10/17/436993646/three-investment-gurus-share-their-model-portfolios https://www.npr.org/2015/10/17/436993646/three-investment-gu... [2] https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0053&ps_disable_redirect=true https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... [3] https://investor.vanguard.com/mutual-funds/actively-managed https://investor.vanguard.com/mutual-funds/actively-managed
- longerthoughts 9y ago
  At the end of the day asset managers' offerings will reflect investor demand even if it disagrees with the personal outlook of firm leadership. Also worth noting that Bogle has been retired for a while and likely has little influence over Vanguard's product offerings.
- smarks 9y ago
  Note that the Vanguard Precious Metals and Mining Fund (VGPMX) invests in companies that pursue "mining of or exploration for precious and rare metals and minerals" and that it's not a fund that invests in gold itself. Some investors say you should invest in gold because ... reasons ... but that's not what VGPMX does.
rifung 9y ago
Yes because he believes you should invest in things which inherently generate value. Note that gold has inherent value in its use for conductivity or jewelry, but it doesn't create any more, which is the same at bitcoin. In other words, I think he would argue that there's nothing "wrong" with buying gold, but you buy gold as speculation and not as an investment.
- hndamien 9y ago
  It also used to have value as a medium of exchange. Not so much these days.
alejohausner 9y ago
Gold does not produce anything, unlike stocks which yield dividends, or land which yields crops. And yet it's a wonderful investment over the very long haul. From 1972 to 2015, BOTH gold and the S&P went up 17-fold. Moreover, investors flee to gold in times of panic. If you hold 50%-50% gold and stocks, one will tend to up when the other goes down, letting you sleep at night.
mathperson 9y ago
yes!

HarryHirsch 9y ago

At least gold is used in jewellery and electronics. What is bitcoin used for, except ransomware?

tootie 9y ago
I think you just convinced me to buy bitcoins.
- vas123 9y ago
  I lol’ed
taneq 9y ago
Silk Road? :P
- rebuilder 9y ago
  You jest, but go read bitcointalk.org's archives from a few years ago (and before) and I think you'll find that's exactly the purpose it seems expected to fulfill.
VMG 9y ago
Start to explore why bitcoin can be used for ransomware and other things cannot.
StephenMelon 9y ago
Well ransomware is a growth market...
rebuilder 9y ago
Money laundering. Illicit transactions. Any number of things government money stored in banks is not much good for. How big a market is that? I'm guessing much, much bigger than most people think.
- HarryHirsch 9y ago
  You do ask how people ran their drug-and-weapons enterprises before bitcoin. You'd guess it was through shady lawyers, corrupt banks, tax oases and webs of mailbox holding companies all the way down. That's proven working. But with bitcoin you are stuck with the dozen shady exchanges. Any normal criminal would think it's too risky.
  - rebuilder 9y ago
    Isn't this like saying Uber can't compete with taxi companies because the old model is proven to work? I'm not able to tell you whether it's true or not, but the claim here is that Bitcoin removes a lot of the friction in illicit markets, so that you don't need to be a Colombian Don to sell cocaine.
  - kamaal 9y ago
    >>Any normal criminal would think it's too risky. Actually a simple Perl script would do. Plus if it comes down to that, those criminals can run their own exchanges.
- kamaal 9y ago
  >>How big a market is that? The Black market in countries like India is large enough beyond our comprehension. Large enough that its mixed so well into everyday life, taking action on it could cause massive economic distress. Bitcoin is the next step in the game for these kind of things. Its like a dream come true.

wallace_f 9y ago

Bitcoin is not a traditional investment, it is a speculative one. Blockchain technology is not proprietary to bitcoin, so given this is fungible what value are you pricing in when buying bitcoin? Access to use bitcoin...

akozak 9y ago

I'm no financial advisor, but I'd fire the person who recommended I buy gold as a long term investment.

alejohausner 9y ago
Actually gold is a very good long term investment. Here are some year-end closing prices: Year gold S&P500 1972: 64 118 2015: 1060 2044 Ratio: 16.5 17.3 True, gold does not have a yield, but it has gone up a lot over the years.
- kelnos 9y ago
  Cherry-picking two dates doesn't really tell us much. Volatility year-over year would be useful to see, and, as they say, past performance is not an indicator of future earnings. A decision to invest (or not invest) in gold should be based on your current expectation of the future.
  - candiodari 9y ago
    Ah come on. We both know that the basic claims about gold are true: 1) Gold returns, over the very long term, are roughly in line with S&P500 returns (but ... we're talking decades, as in plural). 2) in the short term Gold returns are essentially zero. With both the good and bad that comes with: almost no volatility, and when there is volatility, it's sudden large jumps up. The one that isn't well known: 3) Most governments prevented this investment from working when it mattered by (in the US case) outlawing gold. Other governments did different things with similar results. So Gold is a great investment, IF you're willing to wait 20+ years at least, and of course assuming you trust the government (the exact opposite of what most gold bugs will tell you).
    - chiaro 9y ago
      1) is hilariously off base. S&P500 has averaged about 10% nominal return, annual, since 1928. Gold returned a little under 5% nominal over the same period.

berberous 9y ago

Here is Warren Buffet's similar argument against gold from his 2011 annual investor letter [0]. The argument also applies to Bitcoin and other assets that are driven more by speculation than productive income streams: "The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century. This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future. The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end. What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.” Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B." [0] http://www.berkshirehathaway.com/letters/2011ltr.pdf http://www.berkshirehathaway.com/letters/2011ltr.pdf Edit: If you enjoyed the above excerpt, I'd recommend reading it in context, pp. 17 (start at the heading) through end of 19. I've excerpted only the middle part on gold, but he also explains the dangers of holding cash, and further explains why he favors productive investments.

slg 9y ago

Gold is certainly the ideal model for something like Bitcoin but in terms of projectable value gold has time on its side. I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.

StavrosK 9y ago
Pretty optimistic on your lifespan, I see.
jfaucett 9y ago
> Gold is certainly the ideal model for something like Bitcoin I disagree. I don't think Bitcoin should strive to be a store of value like Gold is. Today most Gold investing is just based on fear, because people see a government misbehaving and lose faith in its ability to maintain the value of its fiat and then flee to something that still has some properties useful in monies. This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction. > I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia. The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017. Gold pays no dividends, has no interests, does not appreciate over the long term, and can't protect against incident forms of inflation. On top of all that, it has none of the above mentioned technological advantages Bitcoin brings. There are arguments to be made for Gold but they are in its utility in modern industry, etc.
- slg 9y ago
  >This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction. Those were/are all the main uses for gold for much of human history. Bitcoin has improved on or has potential to improve on those, but its relative volatility puts gold to shame. >The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017...There are arguments to be made for Gold but they are in its utility in modern industry, etc. I would argue the history of gold is the only reason to invest in it. It is extremely overvalued compared to its industrial and commercial uses. However its history shows it is a decent diversification vehicle to protect against loss of value of fiat currencies. This applies to the doomsday scenarios you alluded to in your comment as well as the less drastic economic downturns.

tedsanders 9y ago

Yes, Jack Bogle is down on gold too, calling it: "Speculation" with "no intrinsic value." And to credit Jack Bogle, six years after making that statement, gold is trading lower. https://www.newsmax.com/finance/InvestingAnalysis/bogle-gold-investing/2011/09/02/id/409548/ https://www.newsmax.com/finance/InvestingAnalysis/bogle-gold...

gfodor 9y ago

Large public companies that are unlikely to ever issue dividends or be acquired also fit this description. For those companies, there is no legit expectation of an investor capturing the underlying cash flows, other than on the capital gains from the market price of the stock being gauged against the current P/E consensus (or valuation metric of your choice.) But yet there AMZN, GOOG, and others sit, responsible for a large part of the return in Bogle's revered index funds.

siglesias 9y ago
This is slightly specious. There is an expectation that AMZN or GOOG will eventually issue dividends or repurchase shares, and there's noting fundamentally preventing them from doing so. There's no way to form a valuation otherwise.
- deleted 9y ago
  [deleted]
- gfodor 9y ago
  "Expectation" means that there is some probability <1 that they will return cash to investors on any given day. You have a finite time alive. It's not academic to conjecture that there's a very high probability that you, as an investor, will never see a yield on the capital of your investment. If you knew with 100% there will never be a buyback or dividend by AMZN while you are a holder of their stock, arguably you are making the same trade as someone buying bitcoin or gold: expecting someone else to come along (who perhaps expects to have a longer lifespan) to pay you more for the stock than you did. Note: I am not arguing that buying AMZN is a bad idea, I am saying that the argument that there is no "underlying rate of return" for bitcoin is a poor argument coming from someone who is also telling investors to buy those stocks, many of whom will certainly never see direct yield on their investment, just capital gains.
  - longerthoughts 9y ago
    >arguably you are making the same trade as someone buying bitcoin or gold I think the difference here is that people can intuitively justify changes in the value of a stock regardless of buybacks and dividends because company performance is a tangible, measurable factor (even if only by proxy of flawed but useful metrics). The value of gold is more vaguely determined by market perception/speculation (e.g. gold doesn't have quarterly earnings reports with detailed accounting). Ultimately something has value as long as people believe it has value, but I think the discomfort from folks like Bogle comes from the lack of a rigorous method for valuation vs. assets like equities.

themagician 9y ago

Sounds to me like he is just rambling a bit there at the end. Gold actually does have some intrinsic value—it's useful. It's stable, nonreactive, resistant to corrosion and conducts electricity. It's been used as a value store since antiquity above others particularly because it is stable and noncorrosive. The conducive properties are just an added benefit we now have a use for. A gold coin from a hundred years ago is still a gold coin. A Bitcoin from today may not be a Bitcoin as we know it a few years from now. And if it is, it may be difficult to transact. Bitcoin, on the other hand, really has no use. There was this idea that it might be used to speed up transactions but as we saw leading up to the fork, that's not guaranteed. Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. I think things like Ripple have a far higher value proposition than Bitcoin today—more of what Bitcoin once was.

graeme 9y ago
Botle was talking about return, not store of value. Gold holds value well, but its intrinsic value doesn’t really grow over time.
stale2002 9y ago
Well, the use case for Bitcoin is decentralized, censorship resistant, electronic transactions. Ripple is run using a different consensus algorithm, and is effectively managed by a central authority. The point of Bitcoin has very little to do with speeding up transactions, all though this isn't a negative. The point is sending transactions that are very difficult to censor. And yes, it does a very good job of this as there are a whole lot of transactions that governments would love to censor, but they AREN'T being censored, right now.
epistasis 9y ago
I doubt there's any room for gold in a Bogleheads' retirement portfolio. Or any other commodity. Or any individual stock.
AndrewBissell 9y ago
> Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. The amount of resources required to execute this attack is moving higher at a rapid pace. Also, a 51% attack can gum up new transactions and potentially double spend, at least until people realize the attack is happening and stop signing new transactions. It can't rewrite blocks from the distant past to send everyone's coins to the attacker's address.

nerdponx 9y ago

There is nothing to support bitcoin That's what I've been realizing latey: there is something to support Bitcoin, and that something is the blockchain. The reason banks and big financial companies are interested in it is not for its speculative value. They are interested in the fact that it is both decentralized and immutable. As long as financial corporations are willing to exchange Bitcoin for USD, then Bitcoin is a reasonable store of value. There's also value in Bitcoin because it's a good entry point into other cryptocurrencies that could turn out to be better general-purpose exchange media, like Litecoin. It's a bit like US Treasury Bonds. Nobody buys them for the tiny rate of return they offer, but they have genuine, valid use as a financial instrument. Normal people, however don't typically buy them, and normal people probably shouldn't be buying Bitcoin either unless they have some spare cash to gamble on it.

jorblumesea 9y ago
US Treasury bonds are backed by the military and economic might of a superpower, and the fact that it's an IOU that's almost bulletproof. That's a really big part of their value. It's the safest investment possible which is why governments funnel money into treasuries. Bitcoin just has the power of faith in the network and that liquidity will exist when you want to cash out. Neither of which is certain. Bitcoin really doesn't have any support. Exchanges don't have close to the liquidity needed to allow everyone to withdraw their coins in fiat currency.
- thucydides 9y ago
  I've heard many people say this, and it seemed sensible enough at first. But on further thought, I sincerely can't make sense of it. Dollars are just green pieces of paper. We accept them for goods and services because... everyone ELSE agrees to accept them for goods and services. It's circular. How is the might of the US military relevant here? If you lived in South Korea, would you accept the South Korean won, or would you refuse your salary because their military is too weak compared to the United States? I would take my salary in South Korean won because all of my neighbors and strangers will take it in exchange for goods and services. Circular. The circular argument that cryptocurrency has value has turned into a self-reinforcing cascade. Ironically, because of network effects, the more users and speculators there are in Bitcoin, the more utility it actually has, because others will accept it as money. This - and the human tendency toward envious imitative buying - causes the price to rise even further. Cryptocurrencies are easier to secure and transfer than gold, which we only think has "value" because it's shiny and rare. Yet gold is worth $8 trillion. Why not crypto? (caveat: Bitcoin could fall precipitously in the short, medium, or long term. My argument is that cryptocurrency - Bitcoin, Ethereum, or something else - will be more valuable than gold in 10 years or so.)

jorblumesea 9y ago

Gold has practical uses in industrial applications and electronics. It also has a floor, which is the cost to mine and ship. Gold has a minimum theoretical value although I'm unsure off the top of my head how low that might be. Bitcoin's only value is what people will pay for it and has nothing backing it up. It's not really comparable.

yters 9y ago
Bitcoin is like a fiat currency without a fiat.
- jorblumesea 9y ago
  and without central banking, top tier economists, monetary tools for a bailout, a military and government... It's really not much like a fiat currency at all. The closest thing might be penny stocks.
  - rhino369 9y ago
    Bitcoin has a central bank, it just made its decision ahead of time without regard to supply and demand.
- IncRnd 9y ago
  Bitcoin is unlike a currency in that it is difficult to have a transaction, today, using bitcoin. That will hopefully change, but that is how things are today.
  - lostsock 9y ago
    How is it difficult to have a transaction?
    - IncRnd 9y ago
      I was referring to the time it takes to complete a bitcoin transaction in which confirmation lags significantly behind that of transactions in currencies around the world. https://blockchain.info/charts/avg-confirmation-time https://blockchain.info/charts/avg-confirmation-time https://blockchain.info/charts/median-confirmation-time https://blockchain.info/charts/median-confirmation-time

tryingagainbro 9y ago

Investors like him and Buffet see gold as something just sitting there. if you buy a company, they will increase earnings, market share etc. Gold just sits on a vault--which is a great thing for rich people to use a small % of their wealth for. Just in case. Gold has other uses and a 5000+ year history. Compare it to hundreds of coins out there

SilasX 9y ago

Bogle advocates buying broad stock and bond indexes[1], so yes, he's down on gold too. But that doesn't stop Vanguard from offering a precious metals and mining fund [2] or actively managed funds[3]. [1] https://www.npr.org/2015/10/17/436993646/three-investment-gurus-share-their-model-portfolios https://www.npr.org/2015/10/17/436993646/three-investment-gu... [2] https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0053&ps_disable_redirect=true https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... [3] https://investor.vanguard.com/mutual-funds/actively-managed https://investor.vanguard.com/mutual-funds/actively-managed

longerthoughts 9y ago
At the end of the day asset managers' offerings will reflect investor demand even if it disagrees with the personal outlook of firm leadership. Also worth noting that Bogle has been retired for a while and likely has little influence over Vanguard's product offerings.
smarks 9y ago
Note that the Vanguard Precious Metals and Mining Fund (VGPMX) invests in companies that pursue "mining of or exploration for precious and rare metals and minerals" and that it's not a fund that invests in gold itself. Some investors say you should invest in gold because ... reasons ... but that's not what VGPMX does.

rifung 9y ago

Yes because he believes you should invest in things which inherently generate value. Note that gold has inherent value in its use for conductivity or jewelry, but it doesn't create any more, which is the same at bitcoin. In other words, I think he would argue that there's nothing "wrong" with buying gold, but you buy gold as speculation and not as an investment.

hndamien 9y ago
It also used to have value as a medium of exchange. Not so much these days.

alejohausner 9y ago

Gold does not produce anything, unlike stocks which yield dividends, or land which yields crops. And yet it's a wonderful investment over the very long haul. From 1972 to 2015, BOTH gold and the S&P went up 17-fold. Moreover, investors flee to gold in times of panic. If you hold 50%-50% gold and stocks, one will tend to up when the other goes down, letting you sleep at night.

mathperson 9y ago

yes!