Investing is often described as the process of laying out money now in the
expectation of receiving more money in the future. Investment possibilities are both many and varied. There are three major categories 1)?currency-based investments, 2) gold bullion and?3)?investment in productive assets, and it?s important to understand the characteristics of each. [Let me explain the differences and why I choose the latter.] Words: 1780
So says Warren Buffett in an article from the February 27, 2012 issue of Fortune which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (?) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article?s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Buffett goes on to say, in part:
At Berkshire Hathaway we.. define investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power ? after taxes have been paid on nominal gains ? in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.
From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability ? the reasoned probability ? of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period and, as we will see, a nonfluctuating asset can be laden with risk.
Investment possibilities are both many and varied. There are three major categories, however, and it?s important to understand the characteristics of each. So let?s survey the field. [Also read: Gold Bullion, Stocks or Bonds: Which Have More Long-term Investment Risk?]
1. Currency-based Investments
Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as ?safe.? In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.
Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.
Who in the world is currently reading this article along with you? Click here
Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as ?income.?
For taxpaying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory but if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor?s visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It?s noteworthy that the implicit inflation ?tax? was more than triple the explicit income tax that our investor probably thought of as his main burden. ?In God We Trust? may be imprinted on our currency, but the hand that activates our government?s printing press has been all too human.
High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments ? and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label. Under today?s conditions, therefore, I do not like currency-based investments?
2. Gold
Gold is 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?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. [Read Gold: $3,000? $5,000? $10,000? These 151 Analysts Think So!?and Governments Will Want ? Will NEED ? Much Higher Gold Prices! Here?s Why]
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. Bubbles, [however, when] 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 about $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. [Read Believe It or Not: Only 1 Fund Has Outperformed Physical Gold Since 2007!?for a broader take on investing in the stock market.]
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.
Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. [Read: Richard Russell: PLEASE MOVE INTO GOLD!] We heard ?cash is king? in late 2008, just when cash should have been deployed rather than held. Similarly, we heard ?cash is trash? in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.
3. Businesses, Farms, Real Estate
My own preference ? and you knew this was coming ? is our third category: investment in productive assets, whether businesses, farms, or real estate. [Read Warren Buffett?s Advice Is NOT for the Average Investor! Here?s Why?to?see if his current advice is for you.]?Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses (such as Coca-Cola and IBM)?meet that double-barreled test. Certain other companies ? think of our regulated utilities, for example ? fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets. [Read: Don?t Invest in the Stock Market Without Reading This Article First]
Whether the currency a century from now is based?in the future, the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce. Our country?s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial ?cows? will live for centuries and give ever greater quantities of ?milk? to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).
Berkshire?s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety ? but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we?ve examined. More important, it will be by far the safest. [Also read: Your Stock Market Gains Are Just an Illusion! Here?s Absolute Proof?and Your Portfolio Isn?t Adequately Diversified Without 7-15% in Precious Metals ? Here?s Why]
Why spend time surfing the internet looking for informative and well-written articles when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read. Sign-up for Automatic Receipt of Articles in your Inbox and follow us on 
FACEBOOK | and/or 
TWITTER so as not to miss any of the best financial articles on the internet.
Related Articles:
1. Warren Buffett?s Advice Is NOT for the Average Investor! Here?s Why
Warren Buffett is a smart guy and has ascended to near immortal [status] amongst the investment community due to his superior stock picking skills and boundless wealth. [That being said,] listening to his views on portfolio management and diversification could cripple your financial health and may make him one of the most dangerous men in finance. [Let me explain.] Words: 720
2. Warren Buffett: Diversification is Nothing More Than Protection Against Ignorance
NOT putting all your eggs in one basket makes intuitive sense to many investors. Indeed, evidence indicates that putting more eggs in your basket may actually crack your portfolio, not protect it. Words: 515
3. Value Investing: The Practical Application of Benjamin Graham and Warren Buffett?s Principles
While the average amateur investor may be excellent in their own career field, it doesn?t mean they know what to invest in, or how to pick stocks. In fact being very good at your field can give you the false sense that whatever stocks you pick or your broker picks for you must be good, because after all, you picked them and you picked your broker ? and you?re smart so, no doubt, those stock prices will go up. Unfortunately, the smart and talented stock-picking neophyte is not investing at all but speculating. Words: 924
4. Words of Wisdom from Warren Buffett
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What?s needed is a sound intellectual framework for decisions and the ability to keep your emotions from corroding that framework. Words: 895
5. Buffett, Russell and Hoisington: Deflation or Inflation?
Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. says Warren Buffett. Words: 982 In the following edited excerpts from the original article* Cam Hui (www.questfunds.com) puts forth the case for both inflation and deflation by the likes of Richard Russell, Warren Buffett and Van Hoisington.
6. Your Stock Market Gains Are Just an Illusion! Here?s Absolute Proof
In my opinion, the greatest threat to long-term and retirement investors is the wealth-destroying triple combination of monetary inflation, asset deflation, and inflation taxes. Fully understanding [these factors] is absolutely essential for financial survival because history shows us quite clearly that when all three of these major wealth destroyers are working together in the real world then conventional investing methods cannot withstand the destruction of investor wealth that occurs. [Let me explain why, then, your past and future stock market gains actually have been, and will continue to be, absolutely nothing more than a mirage - a cruel illusion that has and will continue to only benefit our governments - unless you develop a drastic out-of-the-box investment strategy that is radically different from anything that currently exists (or is in the public domain).] Words: 3456
7. Stocks: The Place to be During Coming Inflation
Over the longer term, some of history?s top strategists actually say that inflation is a big reason to buy stocks ? not to avoid them. Foremost among them is Warren Buffett. His inflation research goes way back. In 1977 ? just before the U.S. was about to enter into one of the worst inflationary climates in history ? in a column for Fortune magazine he said, stocks are probably still the best of all the poor alternatives in an era of inflation ? at least they are if you buy in at appropriate prices. Words: 664
8. ?Gold: $3,000? $5,000? $10,000? These 151 Analysts Think So!
151 analysts maintain that gold will eventually reach a parabolic peak price of at least $3,000/ozt. before the bubble bursts of which 101 see gold reaching at least $5,000/ozt., 17 predict a parabolic peak price of as much as $10,000 per troy ounce and a further 13 are on record as saying gold could go even higher than that. Take a look here at who is projecting what, by when and why. Words: 844
9. Governments Will Want ? Will NEED ? Much Higher Gold Prices! Here?s Why
That governments will want ? and will NEED ? much, much higher gold and silver prices in the future is counter intuitive, given that they have done everything within their power to throttle back and to keep a lid on bullion prices. Let me explain why. Words: 1300
10. Believe It or Not: Only 1 Fund Has Outperformed Physical Gold Since 2007!
Out of the 7,500 separate mutual funds available, and with 22,000 shares classes to choose from, only 1 fund ? just ONE fund ? actually managed to achieve a greater percentage return than gold bullion since the alarm bells rang out at the turn of 2007! [That being said, are you still one of the 99% of investors who, for whatever reason (are you foolishly listening to the "advice" provided by your stock broker/securities salesman going under the guise of a financial "advisor"), is still without any physical gold or silver?] Words: 395
11. Richard Russell: PLEASE MOVE INTO GOLD!
For a decade I have been urging my subscribers to move into gold ? either physical bullion or otherwise [Richard Russell: Get Prepared ? A Gold Tsunami is Coming] . Now I am at it again: PLEASE MOVE INTO GOLD. [Here's why you should.] Words: 720
12. Your Portfolio Isn?t Adequately Diversified Without 7-15% in Precious Metals ? Here?s Why
The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137
13. Gold Bullion, Stocks or Bonds: Which Have More Long-term Investment Risk?
In proclaiming buy-and-hold investing to be dead, the pseudo-experts masquerading as financial advisors have abandoned the fundamental principle of investing: buying undervalued assets ? and then giving those assets the time necessary to mature. Instead, these charlatans have forced their clients to become short-term gamblers. Worse still, they are now consistently steering their clients toward the worst possible asset-classes, stocks and bonds, rather than the best ones [simply because they do not] understand the fundamental conceptual difference between risk and volatility. In a market populated by panicked lemmings, we cannot avoid volatility. However, we can and must reduce risk ? which begins by building an allocation of history?s true safe haven asset, precious metals. [Let me explain more about what risk and volatility are and are not.] Words: 1080
14. Don?t Invest in the Stock Market Without Reading This Article First
History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O?Shaughnessy has compiled data that stretches back to before the Great Depression?back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325
?
?
?
******************************* GOLDTENT *******************************
Source: http://rss.goldtent.com/?p=249974
nick santino bruce arians braveheart the misfits hook troy miracle
