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If your friend wasn't trolling and genuinely believed this advice, they have a very poor understanding of risk, and it would be beneficial to them to research i

by senko 3y ago

If your friend wasn't trolling and genuinely believed this advice, they have a very poor understanding of risk, and it would be beneficial to them to research it a bit (by which I don't mean click-driven youtube or tiktok influencers). To be fair, risk, diversification and other important financial concepts are not intuitive and are not taught (in a simple and intuitive way) to people although they're essential to majority of people in well-off societies. In a nutshell, this is a great example of survivorship bias. Yes, with perfect future information, Bill Gates could've been much richer. So would I, and I would only need the winning lottery numbers! Lacking this crystall ball, Buffett's advice was (and remains) correct. Also note at the utlity aspect - as a purchasing power, $1.33T and $138B are the same, and the only meaningful difference is to keep some kind of score. You can buy basically anything that's for sale, burn it to the ground, and still remain filthy rich (recently proven by Musk's acquisition of Twitter, on which he spent around $23B of his own money, according to quick web search).

jraby3 3y ago
Charlie munger and buffet are famous for not diversifying very much. They deeply research companies and then buy them long term. Currently half the Berkshire portfolio is in apple. Also bill gates probably wants to change the world for the better with his assets and has done so repeatedly. So the trillion dollar difference probably would have had a huge positive impact on the world.
- candiodari 3y ago
  I don't understand where this Berkshire reverence comes from. Buffet didn't become rich through stocks. His accomplishment is to stay rich by investing, primarily in insurance contracts, and it does look like that is a good way to summarize Berkshire: it's a backend investment fund for his insurance business. It makes his large insurance contracts a lot more competitive. And about that part, he's very tight lipped. He invests well, but he's hardly the only one, and Berkshire would not work without the backend insurance business generating the amounts of funds he has to invest in the stock market. So all of his advice is mostly pointless, unless you have 100 billion lying around. I'm saying: if you want to beat Berkshire financial performance, they key to that ... is not investment. Which is the great con Buffett pulls. He shows large amounts of money and a very prudent investment strategy, and with that attracts funds to run his insurance business. NOT the other way around. This is the central component of a huge insurance business: you need a LOT of money, available as capital, to run it. To be fair, I've never heard of him lying about this either, but he's not exactly forthcoming with this information. He also does remarkably little investing with the time he has. Clearly he's spending the vast majority of his time on his insurance business, not his investment business.
  - bombcar 3y ago
    The vast majority of Berkshire’s returns come down to identifying strong businesses, acquiring them, and providing them nearly unlimited free capital.
  - jimhefferon 3y ago
    This is interesting, and I have not heard it before. Thanks. But I'm not really interested in WB so much. I'm more interested in his claims about investing. I understand him to say that he has done well over decades, better than the broader market, with Value Investment. Is that true?
  - loumf 3y ago
    Another big part of it is the tax structure of a conglomerate. He is able to take cash out of See's Candies and Daily Queen (where they cannot do any good) and put it into big capital investments in Trains and utility infrastructure -- he can do this tax-free. If you tried to replicate his strategy, but could not hold 100% of the companies, you'd have to constantly sell stock or collect dividends to do the reinvestment and would incur taxes along the way.
  - tim333 3y ago
    >Buffet didn't become rich through stocks. That is untrue. That's exactly how he became rich. Although his dad was wealthy he deliberately took no money from him and started from zero. He started stock investing and ran an early hedge fund, the Buffett Partnership investing for others and taking a cut of the profits. In the 1969 after becoming a multi millionaire and closing that he moved to running Berkshire Hathaway. At Berkshire there is a mixture of stock investing and running businesses. He was briefly ranked the richest man on earth but started giving his shares away to charity. If it was not for the charity thing he'd be up there with Elon.
    - seec 3y ago
      At least that's the mythology he wants you to believe. But if you truly believe that I'm going to say you need to take a hard look at how humans really operate and stop taking stuff said as truth. Because even when people say some true things, there is ALWAYS some hidden information that changes the overall look. It's foolish to believe whatever crap comes out of the mouth of those billionaires regarding how they made it.
- ac29 3y ago
  >Currently half the Berkshire portfolio is in apple. This isnt right. Roughly half of their portfolio of publicly traded companies is in Apple, but they have quite a few 100% owned subsidiaries that are not publicly traded (and a lot of cash, etc). According to the most recent numbers I could find [0], Apple is slightly over 20% of their total holdings. [0] https://www.cnbc.com/berkshire-hathaway-portfolio/ https://www.cnbc.com/berkshire-hathaway-portfolio/
miki123211 3y ago
There's also the fact that owning stock of the company you work for / are the CEO of puts you at double the risk. If the company goes poorly, you're a lot more likely to get laid off / ousted. If this happens, you might want to tap into your investments, but if the company does poorly, your investments are suddenly worth a lot less. If you diversify and invest in a wide array of companies, you're a lot less exposed to the risks of catastrophic changes in your industry.
tialaramex 3y ago
> Also note at the utlity aspect - as a purchasing power, $1.33T and $138B are the same They're not the same. They're similar but they are not the same, this is a much too categorical claim. This is because by that point you're not buying things which are for sale, you're buying things which are not for sale, often things which were specifically commissioned, ie they would not have existed at all except that you caused them to be made by providing the funds to do that. You can't magically do whatever you want, and you certainly don't get to have your preferred outcomes but your spending can introduce larger changes with this much extra money. Example: Guinea Worm Eradication could spend huge sums of money to put heavily armed mercenaries behind the programme so that its health workers can go into unstable regions riven by conflict. A well-meaning medic who enters a region where outsiders are routinely raped and killed by one side or the other is likely to end up dead, but if you hire a bunch of elite soldiers to ensure they're OK that'd work... except you might in the process destabilize the region even worse by flooding them with paid mercenaries and their gear. If some poor African country goes from "We have 300 cases of Guinea Worm per year and a civil war killing hundreds of people per day" to "We have eradicated Guinea Worm but the civil war is now killing thousands of people per day" you have clearly made things much worse but you have achieved your goal, for whatever that's worth. What is true is that at this scale incremental value of money is vastly diminished. Having an extra $10 makes an enormous difference if you have $4, it still makes a little difference if you have $400, it makes almost no difference at all if you have $138B.
- deleted 3y ago
  [deleted]
- tharkun__ 3y ago
  I don't know since I don't have that kind of money but don't "these people" think of money differently? Meaning the dimensions they think in are just different? Musk bought Twitter for $44bn. That's roughly 30% of Bill's net worth if he wanted to buy it "with his own money" (never mind his net worth is in stock, not cash). In the obligatory car analogy this is buying a car cash for the wife for 30k from your 100k savings account, only leaving you with a measly 70k to buy yourself a Porsche vs. having another million for buying cars (which would actually mean you can buy a virtually unlimited number of cars). Of course buying an actual car if you have 138bn vs. 1.33 trillion makes zero difference. Maybe Bill is just more "normie" than Musk in that sense?
concordDance 3y ago
> Also note at the utlity aspect - as a purchasing power, $1.33T and $138B are the same, and the only meaningful difference is to keep some kind of score This isn't quite true. There's a noticeable difference in ability to change the world. With $138B you can eradicate a few diseases and give scholarships to all high performing poor children in the world for a decade. With $1.33T you can do something like transform Colombia into a developed country.
- abenga 3y ago
  If the 1.33T is concentrated in a single company though, can you really sell it without tanking its share price? The 138B Gates holds can probably be liquidated without too much hassle.
  - red-iron-pine 3y ago
    presumably that's why Elon tried to buy Twitter -- TSLA was sky-high, undeservedly so, and if he cashed out bigly then the price would tank. so create a buy-now situation where he can convince the other investors he's not cashing out of a clearly-overhyped, over-valued asset, but is instead making Smart Guy Moves to buy another company, and is simply cashing out TSLA for that purpose. Then he got stuck with the deal, tried to back out three times, and made it what it is today. Hell, he might have gone in with the idea that he'd actually take the TSLA money and put it into Twitter -- only to find the Twitter stock price shooting up + back-end financials and user info (e.g. all of the bot allegations) meant that it wasn't worth the squeeze. A good way to move that TSLA cash until he found out Twitter wasn't as shiny as hoped.
- sschueller 3y ago
  "ability to change the world" that is the problem. I don't want one individual to have this kind of power. No good can come of it ever. There needs to be a global cap on personal wealth and yes this is also possible for people who's wealth is in companies etc.. Convert those stocks to vote only and stop allowing the borrowing against this capital for less than it would cost to sell it. We managed a global minimum cooperate tax rate we can manage this as well.

by senko 3y ago

jraby3 3y ago

Charlie munger and buffet are famous for not diversifying very much. They deeply research companies and then buy them long term. Currently half the Berkshire portfolio is in apple. Also bill gates probably wants to change the world for the better with his assets and has done so repeatedly. So the trillion dollar difference probably would have had a huge positive impact on the world.

candiodari 3y ago
I don't understand where this Berkshire reverence comes from. Buffet didn't become rich through stocks. His accomplishment is to stay rich by investing, primarily in insurance contracts, and it does look like that is a good way to summarize Berkshire: it's a backend investment fund for his insurance business. It makes his large insurance contracts a lot more competitive. And about that part, he's very tight lipped. He invests well, but he's hardly the only one, and Berkshire would not work without the backend insurance business generating the amounts of funds he has to invest in the stock market. So all of his advice is mostly pointless, unless you have 100 billion lying around. I'm saying: if you want to beat Berkshire financial performance, they key to that ... is not investment. Which is the great con Buffett pulls. He shows large amounts of money and a very prudent investment strategy, and with that attracts funds to run his insurance business. NOT the other way around. This is the central component of a huge insurance business: you need a LOT of money, available as capital, to run it. To be fair, I've never heard of him lying about this either, but he's not exactly forthcoming with this information. He also does remarkably little investing with the time he has. Clearly he's spending the vast majority of his time on his insurance business, not his investment business.
- bombcar 3y ago
  The vast majority of Berkshire’s returns come down to identifying strong businesses, acquiring them, and providing them nearly unlimited free capital.
- jimhefferon 3y ago
  This is interesting, and I have not heard it before. Thanks. But I'm not really interested in WB so much. I'm more interested in his claims about investing. I understand him to say that he has done well over decades, better than the broader market, with Value Investment. Is that true?
- loumf 3y ago
  Another big part of it is the tax structure of a conglomerate. He is able to take cash out of See's Candies and Daily Queen (where they cannot do any good) and put it into big capital investments in Trains and utility infrastructure -- he can do this tax-free. If you tried to replicate his strategy, but could not hold 100% of the companies, you'd have to constantly sell stock or collect dividends to do the reinvestment and would incur taxes along the way.
- tim333 3y ago
  >Buffet didn't become rich through stocks. That is untrue. That's exactly how he became rich. Although his dad was wealthy he deliberately took no money from him and started from zero. He started stock investing and ran an early hedge fund, the Buffett Partnership investing for others and taking a cut of the profits. In the 1969 after becoming a multi millionaire and closing that he moved to running Berkshire Hathaway. At Berkshire there is a mixture of stock investing and running businesses. He was briefly ranked the richest man on earth but started giving his shares away to charity. If it was not for the charity thing he'd be up there with Elon.
  - seec 3y ago
    At least that's the mythology he wants you to believe. But if you truly believe that I'm going to say you need to take a hard look at how humans really operate and stop taking stuff said as truth. Because even when people say some true things, there is ALWAYS some hidden information that changes the overall look. It's foolish to believe whatever crap comes out of the mouth of those billionaires regarding how they made it.
ac29 3y ago
>Currently half the Berkshire portfolio is in apple. This isnt right. Roughly half of their portfolio of publicly traded companies is in Apple, but they have quite a few 100% owned subsidiaries that are not publicly traded (and a lot of cash, etc). According to the most recent numbers I could find [0], Apple is slightly over 20% of their total holdings. [0] https://www.cnbc.com/berkshire-hathaway-portfolio/ https://www.cnbc.com/berkshire-hathaway-portfolio/

miki123211 3y ago

There's also the fact that owning stock of the company you work for / are the CEO of puts you at double the risk. If the company goes poorly, you're a lot more likely to get laid off / ousted. If this happens, you might want to tap into your investments, but if the company does poorly, your investments are suddenly worth a lot less. If you diversify and invest in a wide array of companies, you're a lot less exposed to the risks of catastrophic changes in your industry.

tialaramex 3y ago

> Also note at the utlity aspect - as a purchasing power, $1.33T and $138B are the same They're not the same. They're similar but they are not the same, this is a much too categorical claim. This is because by that point you're not buying things which are for sale, you're buying things which are not for sale, often things which were specifically commissioned, ie they would not have existed at all except that you caused them to be made by providing the funds to do that. You can't magically do whatever you want, and you certainly don't get to have your preferred outcomes but your spending can introduce larger changes with this much extra money. Example: Guinea Worm Eradication could spend huge sums of money to put heavily armed mercenaries behind the programme so that its health workers can go into unstable regions riven by conflict. A well-meaning medic who enters a region where outsiders are routinely raped and killed by one side or the other is likely to end up dead, but if you hire a bunch of elite soldiers to ensure they're OK that'd work... except you might in the process destabilize the region even worse by flooding them with paid mercenaries and their gear. If some poor African country goes from "We have 300 cases of Guinea Worm per year and a civil war killing hundreds of people per day" to "We have eradicated Guinea Worm but the civil war is now killing thousands of people per day" you have clearly made things much worse but you have achieved your goal, for whatever that's worth. What is true is that at this scale incremental value of money is vastly diminished. Having an extra $10 makes an enormous difference if you have $4, it still makes a little difference if you have $400, it makes almost no difference at all if you have $138B.

deleted 3y ago
[deleted]
tharkun__ 3y ago
I don't know since I don't have that kind of money but don't "these people" think of money differently? Meaning the dimensions they think in are just different? Musk bought Twitter for $44bn. That's roughly 30% of Bill's net worth if he wanted to buy it "with his own money" (never mind his net worth is in stock, not cash). In the obligatory car analogy this is buying a car cash for the wife for 30k from your 100k savings account, only leaving you with a measly 70k to buy yourself a Porsche vs. having another million for buying cars (which would actually mean you can buy a virtually unlimited number of cars). Of course buying an actual car if you have 138bn vs. 1.33 trillion makes zero difference. Maybe Bill is just more "normie" than Musk in that sense?

concordDance 3y ago

> Also note at the utlity aspect - as a purchasing power, $1.33T and $138B are the same, and the only meaningful difference is to keep some kind of score This isn't quite true. There's a noticeable difference in ability to change the world. With $138B you can eradicate a few diseases and give scholarships to all high performing poor children in the world for a decade. With $1.33T you can do something like transform Colombia into a developed country.

abenga 3y ago
If the 1.33T is concentrated in a single company though, can you really sell it without tanking its share price? The 138B Gates holds can probably be liquidated without too much hassle.
- red-iron-pine 3y ago
  presumably that's why Elon tried to buy Twitter -- TSLA was sky-high, undeservedly so, and if he cashed out bigly then the price would tank. so create a buy-now situation where he can convince the other investors he's not cashing out of a clearly-overhyped, over-valued asset, but is instead making Smart Guy Moves to buy another company, and is simply cashing out TSLA for that purpose. Then he got stuck with the deal, tried to back out three times, and made it what it is today. Hell, he might have gone in with the idea that he'd actually take the TSLA money and put it into Twitter -- only to find the Twitter stock price shooting up + back-end financials and user info (e.g. all of the bot allegations) meant that it wasn't worth the squeeze. A good way to move that TSLA cash until he found out Twitter wasn't as shiny as hoped.
sschueller 3y ago
"ability to change the world" that is the problem. I don't want one individual to have this kind of power. No good can come of it ever. There needs to be a global cap on personal wealth and yes this is also possible for people who's wealth is in companies etc.. Convert those stocks to vote only and stop allowing the borrowing against this capital for less than it would cost to sell it. We managed a global minimum cooperate tax rate we can manage this as well.