NiceUnparticularMan wrote: ↑Thu Jul 29, 2021 6:50 am
Just quickly, I note that Berkshire-Hathaway is a holding company, which means it owns other companies. The companies owned by Berkshire-Hathaway, and thereby by Berkshire-Hathaway stock owners, have net earnings which are then owned by the stock owners. The fact they are not paid out in dividends does not make those net earnings any less real.
Stored, free-floating gold has no such earnings. Hence the effective price to earnings ratio of stored free-floating gold is infinity, which is one of the reasons it is at risk of losing essentially all of its real value over any given period.
Only if stored/locked away. Golds 'dividends' are via other means that require it to be traded. Gains can arise out of price appreciation, income production and/or volatility capture (correlations).
Gold is finite and as such might broadly see its value/price rise with inflation (devaluation of currency), but tends to do so in a volatile manner. Stock price only, global here - not the US right tail (great) historic case, might also broadly pace inflation, with added benefit of paying dividends on top, historically around 4% dividends (again excluding the US where taxation policies incited more of dividends being retained/greater price appreciation of share prices).
Stock price only 0% real, 4.5% dividends on top = 4.5% real.
Gold 0% real, no dividends.
Both having around 20 standard deviations in yearly returns.
50/50 of both yearly rebalanced and the stock price only/gold 50/50 = 12% standard deviation, with 2.25% dividends on top.
Factor in a reduction from 0% real with 20% standard deviation down to 0% real and 12% standard deviation for 50/50 compounds to a +1.3% better outcome due to volatility reduction (better compounding).
For all-stock during accumulation years sometimes monthly savings are added at relative highs, sometimes at relative lows, broadly washes/averages (if anything tends to average-in more at relative highs). 50/50 stock/gold and adding savings to the laggard is more inclined to add at relative lows. Drawdown and for all-stock drawing is inclined to draw at a average level overall, whilst 50/50 and drawing from the highest is inclined to draw at a above average level. Overall that adds another 1% benefit to the 50/50 stock/gold approach. Combined 1.3% + 1% benefits = 2.3%, which if attributed to the gold half alone is like it having earned/paid a 4.6% dividend.
Same reward, with less volatility, better risk-adjusted reward.
1972 to recent, around 10.6% CAGR, with 50/50 having a 0.49 Sharpe versus all-stock 0.45
Since 2005,
50/50 BRK/gold has provided a 7.5% real, without any taxable dividends/interest streams. During periods of stress when inflation and interest rates tend to rise/spike, so also do taxes. Compare a zero dividend/interest portfolio to that of dividend/interest paying when inflation and interest might both be up at 10% levels and where taxation for average investor had risen to 33% levels ... and those holding zero dividend assets relatively outperform by 3.3%.