Warren Buffett Does Recommend The 90/10 Portfolio

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rattlenap
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Warren Buffett Does Recommend The 90/10 Portfolio

Post by rattlenap »

Warren Buffett does recommend the 90/10 Portfolio to the average investor. Below is an excerpt from his 2013 Shareholder Letter on page 20. You can also read the letter via the link below.

http://www.berkshirehathaway.com/letters/2013ltr.pdf


Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.

I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

That’s the “what” of investing for the non-professional. The “when” is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’ observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.
If “investors” frenetically bought and sold farmland to each other, neither the yields nor prices of their crops would be increased. The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by arcticpineapplecorp. »

He's not giving advice of 90/10 to the average investor. He's giving advice to his trustee who handles his estate after his death, for the benefit of his wife. And he says this in the quote from his shareholder letter.

Yes, he's recommending an S&P500 index fund for the stock portion of one's portfolio and a short term government bond fund for the bond portion to the average investor as well, but...

The amount--90/10, 60/40, 30/70--or any other allocation is up to the individual investor's need, ability and willingness to take risk.

Your need, ability and willingness to take risk (or the average investor's) may be different than Warren Buffett's. He thinks 90/10 is suitable for his wife. 90/10 might or might not be suitable for you or others.

90/10 might be suitable for you when you're in your 20s, but would you really feel comfortable holding 90/10 in your 60s or 70s? If you held a 90/10 portfolio and were in retirement during the Great Recession, you would have seen your portfolio decline by 45% between 2007-2009. Would this have been acceptable to you? Only if you had twice the amount of assets in retirement that you actually needed.

Do not follow another's recommendation blindly, but realize the context in which it's being given.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.

I agree people are working hard to try to get around the idea that Mr. Buffett really advised everyone to go 90% in the S&P500, but it doesn't wash. He said it, and he means it. More than that it is consistent with the other things he says in that quote and with his general attitude. His attitude is that American business and the American economy are a successful going concern and that the path to saving and investing is to participate in this economy.

The fact is Mr. Buffett and Mr. Bogle say things that are exactly what they mean and that lots, maybe even almost everyone, on this forum does not exactly, completely, literally agree with. If an investor needs to follow literal dicta like that, then they have their work cut out for them.
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Re: Warren Buffett Recommends ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

Post by Peculiar_Investor »

rattlenap wrote:Warren Buffett does recommend the 90/10 Portfolio to the average investor. Below is an excerpt from his 2013 Shareholder Letter on page 20. You can also read the letter via the link below.

http://www.berkshirehathaway.com/letters/2013ltr.pdf
Warren Buffett wrote: Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.
From my read of Buffett's 2013 letter, the above quote (my bold) is far more important than the specific portfolio recommendation that implements it, and it's the part the most people miss when quoting Buffett about this guidance.

It actually builds on his 2005 Letter, where on page 18 he introduces us to the Gotrocks family and their Helpers.
Warren Buffett wrote:A sufficient number of arrangements like this – heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Bogle and the Bogleheads have helped (pun intended) spread the word about this fourth law and that cost matter and they should be kept low to benefit the investor, not the helpers.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by digit8 »

Although enough intelligent people have had enough interpretations of this piece of advice to make me wary of any cut and dried take on it, I can see a big missing piece if we take this as advice for everyone. To make this a practical option, the investor has to make sure they are socking away plenty of money in the accumulation phase. You don't need Buffett level money, but you need enough to absorb the inevitable (hopefully rare) situation requiring you to dig into the equity portion during a market downturn. A 10% savings rate is not going to meet that for most people.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by huntertheory »

I really think Buffett intended the index fund advice for the average joe, not the 90/10. (And who knows what sorts of caveats he intended with 90/10; maybe 90/10 was supposed to be after excluding a very large cash pile (as Buffett seems to have)). For what it's worth, his mentor Benjamin Graham recommended that the average investor hold no more than 75% of their funds in equities, with 50/50 stocks/bonds being a baseline.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

digit8 wrote:Although enough intelligent people have had enough interpretations of this piece of advice to make me wary of any cut and dried take on it, I can see a big missing piece if we take this as advice for everyone. To make this a practical option, the investor has to make sure they are socking away plenty of money in the accumulation phase. You don't need Buffett level money, but you need enough to absorb the inevitable (hopefully rare) situation requiring you to dig into the equity portion during a market downturn. A 10% savings rate is not going to meet that for most people.
The data from withdrawal studies shows that a 100% stock portfolio is not much inferior to one at 50/50. It is a 100% bond portfolio that results in much lower safe withdrawal rates. It is people who want to rely on "safe" bonds who have to save a lot of money. That is not to negate a realization that stocks are volatile and can leave one in a very bad position if there is a huge crash and no recovery. Bonds can also be very risky in that the return may be small enough that it is impossible for the investor to reach his objectives that way.

I have never sheard either Mr. Buffett or Mr. Bogle refer explicitly to the information provided by those who have studied how portfolio withdrawals come out, beginning with Bengen and also the Trinity Study.

Of course, this is not an argument on my part that anyone should hold only a high stock allocation. My limits are those stated by Benjamin Graham of as little as 25% and at most 75%.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by nisiprius »

First, it's up to Buffett to make himself clear, and one of my gripes about him is that, consistently, he doesn't.

Second, from my reading of the letter when it same out and other things he's said, it is very clear that he positively recommends that ordinary investors choose an S&P 500 index fund for their entire stock allocation. I personally infer, but only from omission, that he is recommending that ordinary investors ignore small-caps and international stocks, although his reasons are unclear. (It is only a guess but I think that it is no more than his version of "the majesty of simplicity," and that to him the S&P 500 is simpler than a total market index).

I did not see anything at all to suggest that he is making a general recommendation of a 90/10 allocation. Again, from other things he's said, it is clear that he does not like "bonds" (and talks as if all bonds were nominal bonds), so it is perfectly possible that he's recommending 90/10 for everyone, even middle-income retirement savers in their fifties. You just can't tell. He isn't clear. But if he is recommending that across the board then (shrug) he's wrong and it's bad advice for most people.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by tennisplyr »

For the most part people visiting this forum are educated, bright and sensible people. They have a good sense of what works for them. Yes, a 70 year old can confortably have a 90/10 portfolio if they have a pension, low expenses and/or decent income. Give us more credit for what we do in our own lives, thinking we'd blinded follow one person's ideas is highly naive.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by investorguy1 »

dbr wrote:Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.

I agree people are working hard to try to get around the idea that Mr. Buffett really advised everyone to go 90% in the S&P500, but it doesn't wash. He said it, and he means it. More than that it is consistent with the other things he says in that quote and with his general attitude. His attitude is that American business and the American economy are a successful going concern and that the path to saving and investing is to participate in this economy.

The fact is Mr. Buffett and Mr. Bogle say things that are exactly what they mean and that lots, maybe even almost everyone, on this forum does not exactly, completely, literally agree with. If an investor needs to follow literal dicta like that, then they have their work cut out for them.
"What I advise here is essentially identical to certain instructions I’ve laid out in my will."

He says certain instructions laid out in my will. Certain means not all. He is referring to investing in an index fund and more specifically the S&P 500. He doesn't mean someone who is 70 years old who is risk averse and has a chance of running out of money if they are 90% S&P500 should do that instead of a much safer 50/50 for their age.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by nisiprius »

dbr wrote:...The data from withdrawal studies shows that a 100% stock portfolio is not much inferior to one at 50/50...
Let me correct that:
Amending dbr, nisiprius wrote:...That data from withdrawal studies shows that over the period 1926 to date, a 100% stock portfolio would not have been much inferior to one at 50/50
I guess that's depends what you mean by "much." And, of course, whether you're an optimist (93% is not much better than 88%) or a pessimist (7% chance of financial ruin is meaningfully better than 12% chance of financial ruin).

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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

investorguy1 wrote:
dbr wrote:Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.

I agree people are working hard to try to get around the idea that Mr. Buffett really advised everyone to go 90% in the S&P500, but it doesn't wash. He said it, and he means it. More than that it is consistent with the other things he says in that quote and with his general attitude. His attitude is that American business and the American economy are a successful going concern and that the path to saving and investing is to participate in this economy.

The fact is Mr. Buffett and Mr. Bogle say things that are exactly what they mean and that lots, maybe even almost everyone, on this forum does not exactly, completely, literally agree with. If an investor needs to follow literal dicta like that, then they have their work cut out for them.
"What I advise here is essentially identical to certain instructions I’ve laid out in my will."

He says certain instructions laid out in my will. Certain means not all. He is referring to investing in an index fund and more specifically the S&P 500. He doesn't mean someone who is 70 years old who is risk averse and has a chance of running out of money if they are 90% S&P500 should do that instead of a much safer 50/50 for their age.
How on earth are you able to decide what part he means and what part he doesn't mean? I contend, for example, that he really means the 90/10 part and that the S&P500 part is just an example and not a "must have." No one can find anything he said to decide between the two. On what basis do you conclude that 50/50 is "safer" than 90/10 either in fact or that Mr. Buffett might think so. All the evidence of his enthusiasm for owning equity in American industry and not debt would lead us to infer that he does not think 90/10 is not safe. Whether 90/10 is "unsafe" in any case takes a long discussion.

It is just a fact that there are respected gurus who appear on the face of it to recommend things a lot of us here would not agree with.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by nedsaid »

No matter what Warren Buffett says, I cannot take the volatility of a 90/10 portfolio, particularly now that I am 57 years old. I have been there, done that, bought that T-Shirt. My portfolio is now 65% stocks and 35% bonds and cash. What he does with his money is his business but I don't recommend such a portfolio except for young investors.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

nisiprius wrote:
dbr wrote:...The data from withdrawal studies shows that a 100% stock portfolio is not much inferior to one at 50/50...
Let me correct that:
Amending dbr, nisiprius wrote:...That data from withdrawal studies shows that over the period 1926 to date, a 100% stock portfolio would not have been much inferior to one at 50/50
I guess that's depends what you mean by "much." And, of course, whether you're an optimist (93% is not much better than 88%) or a pessimist (7% chance of financial ruin is meaningfully better than 12% chance of financial ruin).
Those numbers are exactly the point. They aren't significantly different from one another either statistically nor in any practical sense. There are no error bars around the results. If you go back to 100% bonds the result is significantly different both statistically and, much more importantly, in practical implications. The main practical implication is that if you depend on bonds to finance a retirement and yields are low, then you have to save a lot of money.

It takes a lot of arguing to show why high stock allocations are dangerous. I think the biggest single argument is that most investors would not be able to stand the volatility and would do something stupid with such a portfolio. What Mr. Buffett would say about that I don't know. One might speculate that he would tell people not to be stupid. Maybe he would tell people to have their assets professionally managed by people who don't do stupid things. Another argument is that in principle 90% stocks is not diversified enough. It is too much exposed to "something" that might happen, whatever that is not being known now. I buy that argument and Mr. Buffett does not buy it.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by selftalk »

I believe that Warren Buffett means the 90% 10% literally. He`s also said in the past not to own stocks if you cannot stand a paper loss of 50%. He`s also said that he`d rather get a bumpy 13% growth rather than a 10% smooth return. He`s obviously looking long term which is rising equity values and is not shaken up emotionally by the periodic bear markets that occur that cause his net worth to decline. Patience is truly a virtue if you can adopt it emotionally. Didn`t the Dow and S&P indices rise over the years and with periodic and severe bear markets ? The secret if there is one is to keep your emotions under control and stick to your written investment policy statement and to stop out thinking yourself.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by nisiprius »

dbr wrote:...How on earth are you able to decide what part he means and what part he doesn't mean?...
selftalk wrote:I believe that Warren Buffett means the 90% 10% literally...
And I believe that you cannot tell. You really cannot tell. If you could, we wouldn't be arguing so much about it.

And I further believe that he is an articulate man who would have been perfectly capable of making himself clear if he'd wanted to, but has chosen not to. I don't know why not.

And therefore I don't think it's very interesting or enlightening to study the sound bites of Warren Buffett.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by finite_difference »

nisiprius wrote:
dbr wrote:...How on earth are you able to decide what part he means and what part he doesn't mean?...
selftalk wrote:I believe that Warren Buffett means the 90% 10% literally...
And I believe that you cannot tell. You really cannot tell. If you could, we wouldn't be arguing so much about it.

And I further believe that he is an articulate man who would have been perfectly capable of making himself clear if he'd wanted to, but has chosen not to. I don't know why not.

And therefore I don't think it's very interesting or enlightening to study the sound bites of Warren Buffett.
I tend to agree with nsiprius.

I also wish I had a dollar for each one of these threads. It's a topic that could be stickied, along with "should I buy whole life insurance" (no) and "should I invest in gold?" (no, gold is speculation and not an investment).

Warren Buffett could easily have a 90/10 AA or 99/1 AA and be safe because 10% of $70 billion is $7 billion and 1% of $70 billion is $700 million. I am pretty sure you can live off of $700 million for a while. Buffett and other billionaires are so rich that money basically becomes a complete non-issue. He could just let it sit in cash and even with 4% inflation he'll be a billionaire for over a hundred years in today's dollars.

Basically Warren Buffett is the only person EVER to have consistently outperformed the market over a very long period of time (50+ years). My personal opinion is that he has only been able to do so because he cheats :)
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by investorguy1 »

dbr wrote:
investorguy1 wrote:
dbr wrote:Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.

I agree people are working hard to try to get around the idea that Mr. Buffett really advised everyone to go 90% in the S&P500, but it doesn't wash. He said it, and he means it. More than that it is consistent with the other things he says in that quote and with his general attitude. His attitude is that American business and the American economy are a successful going concern and that the path to saving and investing is to participate in this economy.

The fact is Mr. Buffett and Mr. Bogle say things that are exactly what they mean and that lots, maybe even almost everyone, on this forum does not exactly, completely, literally agree with. If an investor needs to follow literal dicta like that, then they have their work cut out for them.
"What I advise here is essentially identical to certain instructions I’ve laid out in my will."

He says certain instructions laid out in my will. Certain means not all. He is referring to investing in an index fund and more specifically the S&P 500. He doesn't mean someone who is 70 years old who is risk averse and has a chance of running out of money if they are 90% S&P500 should do that instead of a much safer 50/50 for their age.
How on earth are you able to decide what part he means and what part he doesn't mean? I contend, for example, that he really means the 90/10 part and that the S&P500 part is just an example and not a "must have." No one can find anything he said to decide between the two. On what basis do you conclude that 50/50 is "safer" than 90/10 either in fact or that Mr. Buffett might think so. All the evidence of his enthusiasm for owning equity in American industry and not debt would lead us to infer that he does not think 90/10 is not safe. Whether 90/10 is "unsafe" in any case takes a long discussion.

It is just a fact that there are respected gurus who appear on the face of it to recommend things a lot of us here would not agree with.
Because a 90/10 for many people is just terrible advice. Just read some of the other posters who are intelligent and knowledgeable and who said that 90/10 would absolutely be a bad idea for them. On the other hand most reasonable people who are knowledgeable about investing would agree that using the S&P 500 for your stock exposure is a reasonable thing to do ( many would say total stock market is better or international or small value is better but a reasonable person wouldn't say investing in the S&P for your only stock fund is absolutely ridiculous and a terrible idea). But the majority would agree that adjusting your stock bond mix based on your willingness, ability and need makes a lot more scenes than sticking everyone in 90% stocks. If he meant something so extreme as ignore your risk tolerance, time horizon, need and ability to take risk and just go 90% stock than he would have spelled it out clearly. I am not going to assume he takes such an extreme position unless he makes it very clear. The other way of approaching it is much more reasonable and therefore is why I believe it is the most likely interpretation of what he said.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by avalpert »

dbr wrote:Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.
But doesn't the word 'essentially' say that it applies in essence but not totality? So, accepting that he means what he says you have to figure out what is the essence of the advice that is identical to the instruction and which part of the instructions are not identical. From the totality of the instructions and what led him to this in the letter it makes sense to me to see the essence being the mechanism for investment and the non-identical being the amount of exposure - I think you have to read that to not come to the conclusion that Buffet is reckless with his advice to the masses as anyone offering financial advice knows that risk exposure should not be identical across all individuals.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by avalpert »

dbr wrote:
investorguy1 wrote:
dbr wrote:Here is the language that was quoted: "What I advise here is essentially identical to certain instructions I’ve laid out in my will."

That sentence means to me that the advice he is giving to his trust company is the advice he intends for anyone and everyone. I think 'here" is the word that says the advice applies to everyone.

I agree people are working hard to try to get around the idea that Mr. Buffett really advised everyone to go 90% in the S&P500, but it doesn't wash. He said it, and he means it. More than that it is consistent with the other things he says in that quote and with his general attitude. His attitude is that American business and the American economy are a successful going concern and that the path to saving and investing is to participate in this economy.

The fact is Mr. Buffett and Mr. Bogle say things that are exactly what they mean and that lots, maybe even almost everyone, on this forum does not exactly, completely, literally agree with. If an investor needs to follow literal dicta like that, then they have their work cut out for them.
"What I advise here is essentially identical to certain instructions I’ve laid out in my will."

He says certain instructions laid out in my will. Certain means not all. He is referring to investing in an index fund and more specifically the S&P 500. He doesn't mean someone who is 70 years old who is risk averse and has a chance of running out of money if they are 90% S&P500 should do that instead of a much safer 50/50 for their age.
How on earth are you able to decide what part he means and what part he doesn't mean? I contend, for example, that he really means the 90/10 part and that the S&P500 part is just an example and not a "must have."
You decide by evaluating the full context of the text - he had just said "A low-cost S&P 500 index fund will achieve this goal." while making no mention of how much of your cash to invest in equities. Your contention doesn't make sense in the context while the other does - one is being fair to what he wrote and the other isn't.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

investorguy1 wrote: Because a 90/10 for many people is just terrible advice. Just read some of the other posters who are intelligent and knowledgeable and who said that 90/10 would absolutely be a bad idea for them. On the other hand most reasonable people who are knowledgeable about investing would agree that using the S&P 500 for your stock exposure is a reasonable thing to do ( many would say total stock market is better or international or small value is better but a reasonable person wouldn't say investing in the S&P for your only stock fund is absolutely ridiculous and a terrible idea). But the majority would agree that adjusting your stock bond mix based on your willingness, ability and need makes a lot more scenes than sticking everyone in 90% stocks. If he meant something so extreme as ignore your risk tolerance, time horizon, need and ability to take risk and just go 90% stock than he would have spelled it out clearly. I am not going to assume he takes such an extreme position unless he makes it very clear. The other way of approaching it is much more reasonable and therefore is why I believe it is the most likely interpretation of what he said.
In the source referenced below Mr. Buffett says:

"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.

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." http://fortune.com/2012/02/09/warren-bu ... and-bonds/

"In truth they [fixed income] are the most dangerous of assets" In short, Mr. Buffett has explicitly said that bonds are more risky than stocks and he invests accordingly. It is clear to me that he flat out does not think 90/10 is terrible investing advice and that investing too much in bonds is terrible investing advice. People are just going to have to live with the fact of what he says. Of course, the real point is that one should not select an asset allocation based on some comments by Mr. Buffett, or by Mr. Bogle, or by anyone else.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Quark »

nisiprius wrote:
dbr wrote:...The data from withdrawal studies shows that a 100% stock portfolio is not much inferior to one at 50/50...
Let me correct that:
Amending dbr, nisiprius wrote:...That data from withdrawal studies shows that over the period 1926 to date, a 100% stock portfolio would not have been much inferior to one at 50/50
I guess that's depends what you mean by "much." And, of course, whether you're an optimist (93% is not much better than 88%) or a pessimist (7% chance of financial ruin is meaningfully better than 12% chance of financial ruin).
Once we know the odds for the next 50 years, these decisions will be much easier.

For me, the issue is not so much a 7 percentage point difference in the past, it's the unknowable future.

FWIW, I don't regard Buffett has recommending 90/10 for everyone. At best, his letter is ambiguous. I wonder how many posts there are since he published that letter than have also failed to convince everyone. I bet there are a lot. Even if he is, it's not appropriate for everyone.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

Quark wrote:
nisiprius wrote:
dbr wrote:...The data from withdrawal studies shows that a 100% stock portfolio is not much inferior to one at 50/50...
Let me correct that:
Amending dbr, nisiprius wrote:...That data from withdrawal studies shows that over the period 1926 to date, a 100% stock portfolio would not have been much inferior to one at 50/50
I guess that's depends what you mean by "much." And, of course, whether you're an optimist (93% is not much better than 88%) or a pessimist (7% chance of financial ruin is meaningfully better than 12% chance of financial ruin).
Once we know the odds for the next 50 years, these decisions will be much easier.

For me, the issue is not so much a 7 percentage point difference in the past, it's the unknowable future.

And, of course, (irony on) we won't know those odds until the future is the past. Therefore the point, as you say, is that those 7 points don't mean anything. But the point of that relevant to this thread is precisely that it is NOT established that Buffett's alleged advice is actually dangerous. The problem in this thread is trying to understand why Buffett would say something that can't be right. One possibility is that he is right. That includes that at least he thinks he is right.


FWIW, I don't regard Buffett has recommending 90/10 for everyone. At best, his letter is ambiguous. I wonder how many posts there are since he published that letter than have also failed to convince everyone. I bet there are a lot. Even if he is, it's not appropriate for everyone.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by jtdavid »

OP: I have read all of the Berkshire annual letters multiple times. I agree that 90/10 is what he recommends to investors, with the caveat that they must be able to maintain the allocation during thick and thin. He would not recommend 90/10 to anyone who demonstrated they could not stick to the allocation. I have heard him say elsewhere that the bonds are to be used during bear markets when you don't want to sell your stocks during periods of distressed valuations. I think his advice translates to 3-4 years worth of expenses in safe bonds with the rest in stocks.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by JoMoney »

jtravisdavid wrote:... I think his advice translates to 3-4 years worth of expenses in safe bonds with the rest in stocks.
Makes sense to me. If you were withdrawing 4% annually, a 10% bond allocation would cover 2.5 years of withdrawals without touching the stock allocation, and likely 5+ years if you were doing a variable withdrawal from stocks and an extreme bear market cut it in half and you shifted to bonds to make up the difference.
For somebody with other income, not in withdrawal phase, high risk tolerance I think it makes sense... with the caveat that the investor can deal with the volatility... which clearly some people can't.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by investorguy1 »

dbr wrote:
investorguy1 wrote: Because a 90/10 for many people is just terrible advice. Just read some of the other posters who are intelligent and knowledgeable and who said that 90/10 would absolutely be a bad idea for them. On the other hand most reasonable people who are knowledgeable about investing would agree that using the S&P 500 for your stock exposure is a reasonable thing to do ( many would say total stock market is better or international or small value is better but a reasonable person wouldn't say investing in the S&P for your only stock fund is absolutely ridiculous and a terrible idea). But the majority would agree that adjusting your stock bond mix based on your willingness, ability and need makes a lot more scenes than sticking everyone in 90% stocks. If he meant something so extreme as ignore your risk tolerance, time horizon, need and ability to take risk and just go 90% stock than he would have spelled it out clearly. I am not going to assume he takes such an extreme position unless he makes it very clear. The other way of approaching it is much more reasonable and therefore is why I believe it is the most likely interpretation of what he said.
In the source referenced below Mr. Buffett says:

"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.

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." http://fortune.com/2012/02/09/warren-bu ... and-bonds/

"In truth they [fixed income] are the most dangerous of assets" In short, Mr. Buffett has explicitly said that bonds are more risky than stocks and he invests accordingly. It is clear to me that he flat out does not think 90/10 is terrible investing advice and that investing too much in bonds is terrible investing advice. People are just going to have to live with the fact of what he says. Of course, the real point is that one should not select an asset allocation based on some comments by Mr. Buffett, or by Mr. Bogle, or by anyone else.
Based on those quotes and some other posts, I could see your point. If Buffet was a Registered Investment Advisor and gave out that advice to all his clients they could probably sue and win pretty easily.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

investorguy1 wrote:
Based on those quotes and some other posts, I could see your point. If Buffet was a Registered Investment Advisor and gave out that advice to all his clients they could probably sue and win pretty easily.
Maybe. It would probably fail on suitability as most investors would not be able to stay the course through market downturns. In addition that advice could easily not be a match for the objectives of the advisor. It is unlikely that most investors at an older age with significant assets would pass a risk questionnaire at the "highly aggressive = 90% stocks" level.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Quark »

dbr wrote:
investorguy1 wrote: Based on those quotes and some other posts, I could see your point. If Buffet was a Registered Investment Advisor and gave out that advice to all his clients they could probably sue and win pretty easily.
Maybe. It would probably fail on suitability as most investors would not be able to stay the course through market downturns. In addition that advice could easily not be a match for the objectives of the advisor. It is unlikely that most investors at an older age with significant assets would pass a risk questionnaire at the "highly aggressive = 90% stocks" level.
There are risks to stocks beyond being unable to stay the course. Being forced to sell to buy food and shelter, for example.

If bond prices fall and you hold (or don't sell too much), you're guaranteed to make up the initial loss over time. Stocks do not come with any such guarantees.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

Quark wrote:
dbr wrote:
investorguy1 wrote: Based on those quotes and some other posts, I could see your point. If Buffet was a Registered Investment Advisor and gave out that advice to all his clients they could probably sue and win pretty easily.
Maybe. It would probably fail on suitability as most investors would not be able to stay the course through market downturns. In addition that advice could easily not be a match for the objectives of the advisor. It is unlikely that most investors at an older age with significant assets would pass a risk questionnaire at the "highly aggressive = 90% stocks" level.
There are risks to stocks beyond being unable to stay the course. Being forced to sell to buy food and shelter, for example.

If bond prices fall and you hold (or don't sell too much), you're guaranteed to make up the initial loss over time. Stocks do not come with any such guarantees.
Why would you be forced to sell stocks as opposed to bonds under any given circumstance? That doesn't make any sense as a risk presented by an asset. It is a risk presented by the situation of being alive and needing income. If you mean that a risk in stocks is having to support withdrawals even when stocks are down, that effect is offset by the higher average return of stocks. That is why withdrawal studies show that asset allocation does not matter very much until finally with too little in stocks the lower returns of bonds are not sufficient to sustain withdrawals even if the portfolio is not very volatile.

Stocks indeed do not come with a guarantee that losses will be made up and bonds do not come with a guarantee that the return will be enough to sustain needs. Nor do stocks, but the odds are better. A different way to pose the issue is to ask what would be the better strategy to supply wealth of $10,000, an investment that will produce somewhere between $8,000 and $20,000 or an investment that will certainly produce exactly $5,000. Of course, one can propose different combinations of the need and the result. That is exactly what people are doing when they try to judge what the asset allocation should be. Of course the investor who can meet his needs using only bonds would not be advised to shift to stocks. The issue is who is wealthy enough to live at a very low withdrawal rate.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Quark »

dbr wrote:Why would you be forced to sell stocks as opposed to bonds under any given circumstance?
Only a few moments to type a reply, so:

The most likely circumstance forcing a sale is a recession or the like and bonds tend to do better in recessions than stocks.

Stocks are more volatile, so if forced to sell something, the odds are higher that stocks will be down, and further down, than bonds.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

Quark wrote:
dbr wrote:Why would you be forced to sell stocks as opposed to bonds under any given circumstance?
Only a few moments to type a reply, so:

The most likely circumstance forcing a sale is a recession or the like and bonds tend to do better in recessions than stocks.

Stocks are more volatile, so if forced to sell something, the odds are higher that stocks will be down, and further down, than bonds.
When stocks are down and bonds are not, then the investor sells bonds to support withdrawals and additional bonds to rebalance into stocks. Only the investor who has no bonds is forced to sell stocks, but that is not a problem because over time the higher returns of stocks offset this sequence of returns problem. If the withdrawal needed is very large at a short time horizon, then indeed you don't hold the money in stocks. If the withdrawal needed is large and far away, then stocks may be a better investment to meet that need. Here is an example. Would an investor rather start with $10,000 and eventually see an accumulation of $50,000 tumble to $25,000 or see his $10,000 safely reach $15,000? One can run FireCalc and look at the output trajectories to compare how one ends up at different asset allocations. At 100% bonds and starting with $1M, 3% withdrawal rate, the final portfolio value ranges from -$0.6M to +$3.2M. At 100% stocks the final portfolio value runs from +$1.5M to +$25M. Note it is possible for the 100% stock outcome to be less than the best outcome for bonds, but it is only the bond portfolio that actually fails in 12% of retirements and also does not produce great wealth for heirs. I think this would illustrate perfectly what Mr. Buffet is getting at.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Benjamin Buffett »

JoMoney wrote: Sun Nov 13, 2016 11:53 pm
jtravisdavid wrote:... I think his advice translates to 3-4 years worth of expenses in safe bonds with the rest in stocks.
Makes sense to me. If you were withdrawing 4% annually, a 10% bond allocation would cover 2.5 years of withdrawals without touching the stock allocation, and likely 5+ years if you were doing a variable withdrawal from stocks and an extreme bear market cut it in half and you shifted to bonds to make up the difference.
For somebody with other income, not in withdrawal phase, high risk tolerance I think it makes sense... with the caveat that the investor can deal with the volatility... which clearly some people can't.
It would seem that the real purpose of bonds(or cash) is to cushion stocks during a bear market. Given that most bear markets are around five years or less. You would, in the Buffett view want no more than necessary, which for people without pensions or other sources of income be around 20% of the portfolio. The ideal amount of stocks to have when you are still accumulating is around, in the Buffett view, 100%. Of course if you wanted a lazy portfolio 80/20 seems to be a good aggressive mix, and 70/30 a good conservative mix, at least based on the above reasoning.

There is a caveat: the Buffett strategy does not imply a static asset allocation in the traditional sense, it is more of an adjusted bucket strategy. Re-balancing only occurs when stocks are valued highly enough to warrant their sale. Cash for reserves is not used to buy stocks when their valuations have fallen when in retirement because that money is intended to sustain withdraws. So it will only be a partial re-balancing, at least from the way I am reading his letter, and the way I have interpreted that writing(which could be wrong).

You would have to refill your cash cushion when the markets went back up in value. Warren Buffett's widow is wealthy, and likely will not have to sustain her retirement spending for very much longer.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by PoultryMan »

Okay............................throw tomatoes at me BUT.....................in the YEARS since this quote, has anyone actually asked him to clarify it in all the interviews he has held?
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by flaccidsteele »

PoultryMan wrote: Fri Jan 24, 2020 8:53 am Okay............................throw tomatoes at me BUT.....................in the YEARS since this quote, has anyone actually asked him to clarify it in all the interviews he has held?
Clarify what? What he said is still clear

You experiencing cognitive dissonance with what he said?
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by junior »

flaccidsteele wrote: Fri Jan 24, 2020 9:18 am
PoultryMan wrote: Fri Jan 24, 2020 8:53 am Okay............................throw tomatoes at me BUT.....................in the YEARS since this quote, has anyone actually asked him to clarify it in all the interviews he has held?
Clarify what? What he said is still clear

You experiencing cognitive dissonance with what he said?
I wouldn't say it's "clear" exactly.

If his intent was to give advice to ordinary people, I'd expect a little more context for the advice given. Why 90% stock/ 10% bonds rather than some other percentage of stocks versus bonds? Why no international stock? Why S&P 500 rather than a total stock market fund?

I have to conclude that he wasn't really giving advice to ordinary people. It therefore makes sense he's done no interviews about it, because he never intended people here to listen to the advice. But maybe I'm wrong... but we won't know because so little context has been provided.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by flaccidsteele »

Buffett talks about investing in a low-fee S&P500 index repeatedly, but some people just don’t want to hear it

”Consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time. Keep buying it through thick and thin, and especially through thin.” - Warren Buffett on CNBC
Warren Buffett says index funds make the best retirement sense ‘practically all the time’
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Royal Blue »

He is planning on leaving her $100,000,000.00 you can allocate whatever you want when you’re in your 70’s or 80’s with a hundred million. Probably not the best advice for the average person.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by CyberBob »

Royal Blue wrote: Fri Jan 24, 2020 1:26 pm He is planning on leaving her $100,000,000.00 you can allocate whatever you want when you’re in your 70’s or 80’s with a hundred million. Probably not the best advice for the average person.
The absolute amount of money isn’t relative since he talks about a 3 or 4% withdrawal rate.

From an interview with Becky Quick on CNBC:
  • "You also revealed something in the annual letter this year, where you said, you laid out the terms of your will, what you’ve set aside for your wife. Which, I didn’t know any of this,” Quick said.

    To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

People who don't want to hold a 90/10 S&P500/short government asset allocation are going to have to disagree with Mr. Buffett rather than pretend he didn't mean what he said. Also people who don't want to allocate age in bonds with Social Security as a bond are going to have to disagree with Mr. Bogle rather than pretend he didn't say that consistently over time.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dh »

This was from August 2019:
"Warren Buffett's company, Berkshire Hathaway, is currently sitting on $122 billion in cash. Buffett is famously averse to hoarding cash, so it could be a sign that he thinks the market is heading in a bad direction." (Businessinsder.com, 2019).

In regards to his advice for his advisor to put his widow at 90%/10% (S&P 500/Short Term bonds) ... Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%. I believe everyone needs to determine an asset allocation that fits their need and ability to take risk, and not blindly follow ANYONE's (yes, even Warren Buffett's) suggestions. My two cents on this late Friday afternoon. :sharebeer
Last edited by dh on Fri Jan 24, 2020 3:10 pm, edited 1 time in total.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Unladen_Swallow »

dh wrote: Fri Jan 24, 2020 3:02 pm This was from August 2019:
Warren Buffett's company, Berkshire Hathaway, is currently sitting on $122 billion in cash. Buffett is famously averse to hoarding cash, so it could be a sign that he thinks the market is heading in a bad direction.
This is making inferences where none such exists.

Buffet has said that he does not like having cash sitting around, but hasn't found a worthwhile purchase to make. He would deploy as soon as something looks attractive.

This is not saying g that the market is headed in any direction whatsoever.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dh »

It IS an inference from businessinsider.com

...
In regards to his advice for his advisor to put his widow at 90%/10% (S&P 500/Short Term bonds) ... Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%. I believe everyone needs to determine an asset allocation that fits their need and ability to take risk, and not blindly follow ANYONE's (yes, even Warren Buffett's) suggestions. My two cents on this late Friday afternoon. :sharebeer
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Unladen_Swallow »

dh wrote: Fri Jan 24, 2020 3:08 pm It IS an inference from businessinsider.com

...
In regards to his advice for his advisor to put his widow at 90%/10% (S&P 500/Short Term bonds) ... Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%. I believe everyone needs to determine an asset allocation that fits their need and ability to take risk, and not blindly follow ANYONE's (yes, even Warren Buffett's) suggestions. My two cents on this late Friday afternoon. :sharebeer
I heard his interview where he made this quote. If Business Insider is inferring this, I guess they are making inferences that don't exist.
Last edited by Unladen_Swallow on Fri Jan 24, 2020 3:30 pm, edited 1 time in total.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by flaccidsteele »

dh wrote: Fri Jan 24, 2020 3:02 pm This was from August 2019:
"Warren Buffett's company, Berkshire Hathaway, is currently sitting on $122 billion in cash. Buffett is famously averse to hoarding cash, so it could be a sign that he thinks the market is heading in a bad direction." (Businessinsder.com, 2019).
Clickbait

Berkshire isn’t “sitting on cash”. Berkshire matches their fixed income portfolio (of which cash is a part) to their insurance float. Berkshire has been doing this for decades :oops:
dh wrote: Fri Jan 24, 2020 3:02 pm In regards to his advice for his advisor to put his widow at 90%/10% (S&P 500/Short Term bonds) ... Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%. I believe everyone needs to determine an asset allocation that fits their need and ability to take risk, and not blindly follow ANYONE's (yes, even Warren Buffett's) suggestions. My two cents on this late Friday afternoon. :sharebeer
Low fee US index has worked for me. And I don’t have Buffett money. My two cents on this late Friday afternoon. :sharebeer
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Fclevz »

dh wrote: Fri Jan 24, 2020 3:02 pm Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%
His 'so much money' is in Berkshire. And, as quoted above, all of his Berkshire shares are going to philanthropy. He has pledged to give away 99% of his net worth to charity before he dies. 83% of the money will go to The Bill and Melinda Gates foundation.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dh »

Fclevz wrote: Fri Jan 24, 2020 4:02 pm
dh wrote: Fri Jan 24, 2020 3:02 pm Mr. Buffett has so much money that his widow will be find being 90%/10% or even 10%/90%
His 'so much money' is in Berkshire. And, as quoted above, all of his Berkshire shares are going to philanthropy. He has pledged to give away 99% of his net worth to charity before he dies. 83% of the money will go to The Bill and Melinda Gates foundation.
He is an incredibly gracious man. I knew he was giving money to the Bill and Melinda Gate Foundation (a wonderful cause), but I didn't realize he was giving away 99% of his net worth. His net worth is 87.3Billion, so $86,427,000,000 (99%) will go to charity and $870,000,000 (1%) will go to his widow. :sharebeer
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by OldBallCoach »

a little off topic but if you get some time look at the Netflix series called "Inside Bills Brain" It will give you some great ideas of how he spends the money..amazing people in the world doing things that none of us ever think about...
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dh »

OldBallCoach wrote: Fri Jan 24, 2020 4:59 pm a little off topic but if you get some time look at the Netflix series called "Inside Bills Brain" It will give you some great ideas of how he spends the money..amazing people in the world doing things that none of us ever think about...
OldBallCoach: It is incredible and provacative! Like you, I highly recommend it.
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Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by Royal Blue »

CyberBob wrote: Fri Jan 24, 2020 2:20 pm
Royal Blue wrote: Fri Jan 24, 2020 1:26 pm He is planning on leaving her $100,000,000.00 you can allocate whatever you want when you’re in your 70’s or 80’s with a hundred million. Probably not the best advice for the average person.
The absolute amount of money isn’t relative since he talks about a 3 or 4% withdrawal rate.

From an interview with Becky Quick on CNBC:
  • "You also revealed something in the annual letter this year, where you said, you laid out the terms of your will, what you’ve set aside for your wife. Which, I didn’t know any of this,” Quick said.

    To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”

Read it again Mac. He’s talking about his wife withdrawing 3 or 4% of a 10mil Bond portfolio. Because in a downturn that’s not when you want to be selling stocks. So if someone has a 1mil portfolio, you think 900k in S&P500 and a 100k in bonds??? So if there’s a downturn you take 3 or 4% of a 100k bond portfolio and don’t sell stocks because they’re down?

Size matters my friend, as stated what you can do with a 100mil is different than with 1mil. You can afford a lot more risk.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Warren Buffett Does Recommend The 90/10 Portfolio

Post by dbr »

Royal Blue wrote: Fri Jan 24, 2020 5:14 pm
CyberBob wrote: Fri Jan 24, 2020 2:20 pm
Royal Blue wrote: Fri Jan 24, 2020 1:26 pm He is planning on leaving her $100,000,000.00 you can allocate whatever you want when you’re in your 70’s or 80’s with a hundred million. Probably not the best advice for the average person.
The absolute amount of money isn’t relative since he talks about a 3 or 4% withdrawal rate.

From an interview with Becky Quick on CNBC:
  • "You also revealed something in the annual letter this year, where you said, you laid out the terms of your will, what you’ve set aside for your wife. Which, I didn’t know any of this,” Quick said.

    To which Buffett responded: “Well, I didn’t lay out my whole will. . . . I did explain, because I laid out what I thought the average person who is not an expert on stocks should do. And my widow will not be an expert on stocks. And I wanna be sure she gets a decent result. She isn’t gonna get a sensational result, you know? And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that’s left to her? Part of it goes outright, part of it goes to a trustee. But I’ve told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there’s a terrible period in the market and she’s withdrawing 3% or 4% a year you take it out of that instead of selling stocks at the wrong time. She’ll do fine with that. And anybody will do fine with that. It’s low-cost, it’s in a bunch of wonderful businesses, and it takes care of itself.”

Read it again Mac. He’s talking about his wife withdrawing 3 or 4% of a 10mil Bond portfolio. Because in a downturn that’s not when you want to be selling stocks. So if someone has a 1mil portfolio, you think 900k in S&P500 and a 100k in bonds??? So if there’s a downturn you take 3 or 4% of a 100k bond portfolio and don’t sell stocks because they’re down?

Size matters my friend, as stated what you can do with a 100mil is different than with 1mil. You can afford a lot more risk.
No, the 3%-4% is of the total portfolio or 30%-40% of the bonds when you are not selling stocks. That means you survive a two or three year downturn and then presumably sell stocks to replenish the bonds. I don't pretend that makes sense either, but it would be what is actually meant.

That said somebody talking about average person in one breath and someone with $100M in the other certainly is in two different worlds. Looking at what is quoted above suggests he thinks she is going to spend three or four million dollars a year and that makes no sense at all. It could be at that point he is thinking of an ordinary investor with $1M. I think I did read that the trust for his wife was not supposed to be just for her but was intended to grow for future generations as well.
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