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>Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock $1 in gold 90 years ago: $87

by gibybo 15y ago

>Gold is up 87 fold over 90 years or so. There is no way to capture that kind of return out of stocks, other than to buy one stock $1 in gold 90 years ago: $87 today (by your number anyway) $1 in a basket of stocks that were traded to match the DOW starting 90 years ago: $174 today (from the article's numbers) Keep in mind this includes the recent 5 year period where gold has shot up and stocks have performed miserably. If we picked different dates, gold would be even further behind.

shingen 15y ago
The problem is you could have actually owned gold for 90 years. Average Joe could have bought gold and held it. You could not have owned the Dow index for 90 years and then left that to your children or grandchildren. Would you like to still be holding Polaroid or Kodak? Or perhaps just bought and held the classic Dow index perpetual GM? You would have gotten wiped out in the Dow shuffling. The Dow gets to drop something like GM at its convenience, but if you had bought its stocks in a basket format (not an ETF), you'd literally be holding worthless old GM shares, and a lot of other worthless shares that they don't currently count in today's Dow numbers. The Dow calculation is a theoretical, not an actual. 90 years ago only a very savvy investor could have owned a basket of stocks to mirror and index exactly and constantly traded in and out of the market. In 1920, an exceedingly small % of people owned or had access to equity markets. Buffet using even 1965 as the reference point is disingenuous because of those reasons. His scenario is not a normal one: he used his father's brokerage firm to commit his first market transactions back in his early days. How many Dow tracking ETFs existed in 1965? How many people owned stocks in 1965? Today you can open an account at Scottrade or wherever, and pay a mere $7 transaction fee to buy stocks.
- gibybo 15y ago
  The Dow doesn't get to drop GM after it goes bankrupt and then not count its losses. The decline of GM hurt the Dow index just as much as it would have hurt anyone else that bought and sold GM stock when the Dow index added/dropped it. It also represents an average of the market, so the fact that it was hard to mirror it exactly is not particularly relevant. Mirroring it approximately, or buying any other large basket of stocks, would have led to roughly the same result. While it's true that an investment in Gold was better than an investment in USD, it wasn't better than common stock equities. You said the only way to capture a return better than Gold was to buy a particular stock at IPO, but that's just factually incorrect.
  - shingen 15y ago
    The Dow gets to replace GM with another growth vehicle of the modern era. While you take a real beating on the shares, the Dow simply swaps in a new stock (typically one with brighter prospects that can recharge the lost value in the Dow). You can't swap your dead GM shares for the shares in, say, John Deere when it's added to the index. Your money is gone.
    - william42 15y ago
      There are index funds that swap out exactly the same way the Dow does.
    - stouset 15y ago
      You, simply put, utterly fail to understand how indexes work.
- weavejester 15y ago
  "The problem is you could have actually owned gold for 90 years. Average Joe could have bought gold and held it." I don't understand why this is a problem. You seem to be arguing that if you were a person of average wealth, thinking about investment 90 years ago, gold might have been a reasonable choice. But if I want to invest today, investing in an ETF will almost certainly give me far greater return than gold.
Czarnian 15y ago
I must be missing something. The situation described is not a fold. When talking about folding, you're really talking about doubling. For $1 in gold to increase 87-fold, it would have a value of approximately 7.7 times 10 to the 25th power. I'm pretty sure that was not the intent. What's really being said is that $1 in gold has gone up 8700%. Compared to the same dollar going up 17,400% in stocks.

by gibybo 15y ago

shingen 15y ago

The problem is you could have actually owned gold for 90 years. Average Joe could have bought gold and held it. You could not have owned the Dow index for 90 years and then left that to your children or grandchildren. Would you like to still be holding Polaroid or Kodak? Or perhaps just bought and held the classic Dow index perpetual GM? You would have gotten wiped out in the Dow shuffling. The Dow gets to drop something like GM at its convenience, but if you had bought its stocks in a basket format (not an ETF), you'd literally be holding worthless old GM shares, and a lot of other worthless shares that they don't currently count in today's Dow numbers. The Dow calculation is a theoretical, not an actual. 90 years ago only a very savvy investor could have owned a basket of stocks to mirror and index exactly and constantly traded in and out of the market. In 1920, an exceedingly small % of people owned or had access to equity markets. Buffet using even 1965 as the reference point is disingenuous because of those reasons. His scenario is not a normal one: he used his father's brokerage firm to commit his first market transactions back in his early days. How many Dow tracking ETFs existed in 1965? How many people owned stocks in 1965? Today you can open an account at Scottrade or wherever, and pay a mere $7 transaction fee to buy stocks.

gibybo 15y ago
The Dow doesn't get to drop GM after it goes bankrupt and then not count its losses. The decline of GM hurt the Dow index just as much as it would have hurt anyone else that bought and sold GM stock when the Dow index added/dropped it. It also represents an average of the market, so the fact that it was hard to mirror it exactly is not particularly relevant. Mirroring it approximately, or buying any other large basket of stocks, would have led to roughly the same result. While it's true that an investment in Gold was better than an investment in USD, it wasn't better than common stock equities. You said the only way to capture a return better than Gold was to buy a particular stock at IPO, but that's just factually incorrect.
- shingen 15y ago
  The Dow gets to replace GM with another growth vehicle of the modern era. While you take a real beating on the shares, the Dow simply swaps in a new stock (typically one with brighter prospects that can recharge the lost value in the Dow). You can't swap your dead GM shares for the shares in, say, John Deere when it's added to the index. Your money is gone.
  - william42 15y ago
    There are index funds that swap out exactly the same way the Dow does.
  - stouset 15y ago
    You, simply put, utterly fail to understand how indexes work.
weavejester 15y ago
"The problem is you could have actually owned gold for 90 years. Average Joe could have bought gold and held it." I don't understand why this is a problem. You seem to be arguing that if you were a person of average wealth, thinking about investment 90 years ago, gold might have been a reasonable choice. But if I want to invest today, investing in an ETF will almost certainly give me far greater return than gold.

Czarnian 15y ago

I must be missing something. The situation described is not a fold. When talking about folding, you're really talking about doubling. For $1 in gold to increase 87-fold, it would have a value of approximately 7.7 times 10 to the 25th power. I'm pretty sure that was not the intent. What's really being said is that $1 in gold has gone up 8700%. Compared to the same dollar going up 17,400% in stocks.