Berkshire Hathaway 2017 Annual Letter [pdf]

When people invest, they are worried about things like a market correction wiping out half their purchasing power should they decide to sell and spend it next year. These events are protected by owning bonds and cash. But the real insidious killer is the long-term risk of sitting in the sidelines as bull markets go by and wipe out your ability to purchase long-delayed spending on the cheap. Or in other words, the risk that today's price is the lowest you'll ever be able to find the S&P 500.

I'm worried about that last scenario enough that I'm considering changing my investment strategy from 100% global stocks to include buying some long-dated S&P 500 call options. If the market goes down my future cash flows buy my retirement spending on the cheap, so losing a relatively small amount of money on call options that expire worthless is fine. If the market goes on a tear and stays up, though, I'm in a pretty rough spot.

I want 1 year of expenses in cash, 2-4 years of expenses in bonds and the rest in stocks. Then I will have the courage to wait out (or buy into) the inevitable stock market crashes. This is my ideal retirement holding--while I have labor income is a different story.

I don't buy bonds for the return, I buy them for safety of principal. So, the risk of lower return is absolutely acceptable to me.

PS Please don't take investment advice from random people on the internet, definitely including me.

I fear people may misinterpret what Buffett said esp. for those who don't have memory far back enough. In 2007 I recall one could buy long term CDs at 7%. These were basically relatively riskless guaranteed returns for small investors. Nowadays the comparable returns are a little above 3%.

During the financial crisis many credits of financial companies were selling for a fraction of their face value. For example AIG bonds, or Bank of America subordinated debt. You could buy them for a whopping nominal interest rate north of 15%.

Even as late as 2011, during the muni market scare, one could buy California state taxable bonds and and California school bonds (federal and state tax-exempt) at about 8% interest rate. If one were a little more adventurous (and read up on the laws a little) one could have bought California muni bonds backed by redevelopment tax increments at close to 10% (and insured as well).

All these were safer than stocks at the time and delivered comparable returns. They were not meaningful if you have a portfolio the size of Buffett's, but they were good opportunities for small investors.

Talk about the understatement of the century. 20% annual return, that's it? Should be easy...

"Don't use leverage" is good advice for people who do not have the skills and experience to properly manage risk (which is to say, over 90% of the population). The proper answer is something like a long explanation of the Kelly Criterion, risk of ruin, how to evaluate the very fuzzy notion of your own career's job security and social safety net, and a ton of other factors.

Circling back to your question about a mortgage, though - just don't become "house poor". You want to have free cash flow above monthly expenses. Outside of that, on a 30-year fixed-rate mortgage basis, feel free to borrow and invest literally every dollar the bank approves you for. Especially if the loan is single-action or your investments get funneled into creditor-protected retirement accounts.

Edit: I guess a secondary concern is the risk of interest rates going up, will you be ok if the cost of servicing the debt doubles?

http://docs.lhpedersen.com/BuffettsAlpha.pdf

This will increase share value on average over time. This isn't speculating in a capital gains increase. This is a measureable increase in value based on earnings.

So, if coca cola increases profits, berkshire can reasonably expect this is to their direct benefit: even if coca cola pays no dividend. They could have basically.

And you can realize a gain when you eventually sell.

For all intents and purposes they were inline with the market...

I think Buffet has instilled enough of his values and vision in the company, memorialized in the annual letters, books, interviews. The concepts will live on.

I heard it was because he never really understood the tech behind the companies. He has also stated that he regrets not investing in Amazon early on.

He has been reading IBM's annual reports for the last 50 years.

That’s interesting on verisign. Never would’ve thought of them.

But you’re right, especially compared to Apple they’re positioning themselves to grow through acquisition. I do wonder if Amazon has the highest chance of maximizing that strategy.

Buffet interview talking about the tax changes before they got through.

Similarly, those who buy into cryptocurrency will ideally hope that others will value it as a viable alternative to fiat, thus increasing its worth. This is in contrast to buying into crypto because its worth measured in fiat is increasing on an exchange.

However, in the case of the US there's the caveat that it runs the world's reserve currency, controls the petrodollar, and is able to strongarm other countries into accepting its domestic banking laws (through the likes of FATCA).

That situation is unlikely to persist for the next 100 years, which is going to be disproportionately bad for the US economy.

B of all, You can stay in Kansas City or Des Moines the Friday night before the meeting, and potentially get a flight out Saturday night or Sunday. It's two hour drive from Des Moines to Omaha, so doesn't make for too crazy early leaving Saturday morning.

There are also some decent hotels on the drive from KC or Des Moines to Omaha, so you could stop a bit closer.