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The main takeaway for me is that is Buffett encourages investors to invest in companies that reinvest all earnings in resource saving capital investments. He ar

The main takeaway for me is that is Buffett encourages investors to invest in companies that reinvest all earnings in resource saving capital investments. He argues that is the proper way to increase standards of living, and not with distributions of earnings to investors or redistribution to the government in printing money. That is, stocks that don't pay dividends, and require the government to have a balanced budget. My argument against this, and is one he has made in later years, is the greed of modern management discourages investors from long term investments in a company. Specifically, outrageous salaries for subpar results, golden parachutes, or acquisitions of questionable value. Wells Fargo's management either lied or was not doing their job, and yet their CEO was paid compensation of $20 million in 2014 (did a quick google search for a figure). Meyer's spent Yahoo's money on acquisitions that people she knew owned, enriching many friends in her network. I really don't feel like subsidizing a connected person's cash grab. Dividend stocks are a way to get some control over management that tries to pocket the earnings for themselves. Investors flee a stock that even looks like it could cut it's dividend which avoids some of the wasteful acquisitions and compensation (management is forced to buy in as an investor to get the dividends). If the stock goes down you can reinvest the dividends. If it goes up you can sell the stock and reinvest in one that has a better yield.

pjc50 9y ago
"Looting" of companies by their management is starting to look like an increasing problem. Usually in failing companies, but one day it will turn a success into a conspicuous failure. UK examples: Jaguar Land Rover, BHS, Carillion.
- csdreamer7 9y ago
  > "Looting" of companies by their management is starting to look like an increasing problem. I think it's been a problem since the 80's. When I look at management pay issues and corporate raiding that was the era Buffett began talking about it if I remember correctly. Futurama even made fun of it indirectly in an episode.
  - drharby 9y ago
    My only regret is that i have boneitis
MrLeap 9y ago
People who have authority over where money flows tend to authorize it flowing to themselves. A group of people who each controls the destination of a money flow but can't choose themselves choose each other, thereby choosing themselves.
opportune 9y ago
I disagree with his point too, for a different reason (not that your reason isn't valid). Whether it's good to reinvest dividends should really depend on economies/diseconomies of scale. If a business is able to invest in something that really will save resources, or if they may leverage existing resources to open new markets in a more efficient way than a startup or competitor, then it's a good idea to reinvest the dividends. It was a good idea for Amazon to make use of their existing computing infrastructure to enter a new market (cloud computing) via reinvested earnings even though they didn't really save any resources by doing so. Likewise, if a business were able to reinvest their earnings to save resources, but only achieved a 1% ROI on that investment (e.g. every $100 we spend on making our factory energy-efficient cuts costs by $1/year for the foreseeable future), then investors should take the dividends instead as they could get a better yield just through treasuries. I guess this isn't technically an example of diseconomies of scale, but just think of any company with "too many cooks in the kitchen" syndrome and you'll know what I mean. To a rough approximation, any "reinvested" money by a business is simply a tax-protected reinvestment of the dividends that the stockholders would receive instead. That's why it's not enough to look at whether those capital investments save resources. That money needs to actually be better spent within the business than it could be individually by the business' investors elsewhere.

pjc50 9y ago

"Looting" of companies by their management is starting to look like an increasing problem. Usually in failing companies, but one day it will turn a success into a conspicuous failure. UK examples: Jaguar Land Rover, BHS, Carillion.

csdreamer7 9y ago
> "Looting" of companies by their management is starting to look like an increasing problem. I think it's been a problem since the 80's. When I look at management pay issues and corporate raiding that was the era Buffett began talking about it if I remember correctly. Futurama even made fun of it indirectly in an episode.
- drharby 9y ago
  My only regret is that i have boneitis

MrLeap 9y ago

People who have authority over where money flows tend to authorize it flowing to themselves. A group of people who each controls the destination of a money flow but can't choose themselves choose each other, thereby choosing themselves.

opportune 9y ago

I disagree with his point too, for a different reason (not that your reason isn't valid). Whether it's good to reinvest dividends should really depend on economies/diseconomies of scale. If a business is able to invest in something that really will save resources, or if they may leverage existing resources to open new markets in a more efficient way than a startup or competitor, then it's a good idea to reinvest the dividends. It was a good idea for Amazon to make use of their existing computing infrastructure to enter a new market (cloud computing) via reinvested earnings even though they didn't really save any resources by doing so. Likewise, if a business were able to reinvest their earnings to save resources, but only achieved a 1% ROI on that investment (e.g. every $100 we spend on making our factory energy-efficient cuts costs by $1/year for the foreseeable future), then investors should take the dividends instead as they could get a better yield just through treasuries. I guess this isn't technically an example of diseconomies of scale, but just think of any company with "too many cooks in the kitchen" syndrome and you'll know what I mean. To a rough approximation, any "reinvested" money by a business is simply a tax-protected reinvestment of the dividends that the stockholders would receive instead. That's why it's not enough to look at whether those capital investments save resources. That money needs to actually be better spent within the business than it could be individually by the business' investors elsewhere.