vinod1

I think there is a fundamental misunderstanding of how Social Security works in a large economy. Not small national states. Social security could have $50 trillion in stocks and bonds and it makes no difference in reality to how much can be paid out. SS transfers the purchasing power from current workers to retirees. If SS taxes are not collected, it just leads to inflation. Someone has to work and take a pay cut (losing some of the purchasing power by paying SS taxes). Imagine 100% of the country is retired and on SS. SS fund is worth $200 trillion. The govt starts paying everyone and no one needs to work. Someone needs to collect the garbage, produce goods, etc. Vinod

Thank you!

Thank you! We use canola oil for cooking, would that be just as bad as vegetable oil? Do you recommend olive oil for cooking or something else? I kind of understood what you are saying at a broad level but do not really understand it well enough. Vinod

Hi boilermaker75, I am aware of the warnings about the other things, but am surprised at limiting vegetable oil consumption. Could you please explain why? Thanks Vinod

Not to nitpick. There is a subtle unintuitive mistake in this calculation. It would seem obvious that you would use net buybacks to calculate returns, but that is not correct. The stock dilution is already incorporated in the earnings calculation i.e. the earnings are penalized for the stock issued to employees/executives. So you should not be penalizing that again by only calculating net buybacks. You just have to use the total amount of buybacks. Vinod

Show me a person who calls the current environment "Everything Bubble", I can show you a person who has underperformed the stock market. Every.Single.One.Of.Them. Zero exceptions. Vinod

I always wonder about this: I know a couple of illegal immigrants from Mexico who cannot speak any english, do not have a permit to work legally in the US, are not qualified/employable in vast majority of the available jobs. Yet, they are able to earn enough money to not only sustain themselves, but send money to support their families back home. I believe this is fairly common. How is it then that someone who is born in the US, who is eligible to work, speaks the language, knows the system, yet is not able to support themselves? Outside of physical or mental health issues, I think anyone born and brought up in the US, should be able to live a comfortable life. On an entirely separate point.. Living paycheck to paycheck might be a very rational decision. Maybe those of us on the forum are the suckers? Every year of life counts as much as any other. Your happiness in the year when you are age 27 should have the same weight as your happiness in the year when you would be 77. So if someone is spending their entire salary to optimize for current happiness, why should that be looked down upon? Those of us furiously saving in younger years for presumed happiness from being able to spend in later years, might not be so different when happiness is weighted equally over all years of life. I was thinking about the above specifically from a children's education point of view: should children be working hard, optimizing for college admissions, later career payoffs, etc. but it also seemed applicable to this case. Vinod

The very fact that you ask questions means you are on the right track. I read several posts where you are missing something very fundamental. If interested read this book end to end, make notes, read it again, give it a few months, read your notes again. I spent 6 months on this book after completing all three levels of CFA and it was an eye opener. https://www.amazon.com/Investment-Valuation-Techniques-Determining-Second/dp/0471414883 The point is to understand the fundamentals very thoroughly. Saves you so much time the rest of your investment life. Good luck. Vinod

Let me change my suggestion a little. I was focusing entirely on monthly needs without considering any lump sum needs for unexpected contingencies. 1. If she needs long term care, do you have a plan to fund that? That is a significant risk. Might want to keep aside $150k to $200k for that kind of situation, if you are not able to get a cost effective long term care insurance. Plus you need something like $50-$100k for emergencies. You might want to use laddered individual TIPS (1 year, 2 year and 3 year should be enough) for this to protect from unexpected inflation. A sudden one time inflation of any significant amount would be a killer to nominal bonds. 2. No matter what, an annuity is a no brainer in this case. Only question is how much and who to get it from.

I ran the numbers a whole while back, but if they have indexed their bond and stock portfolio, they would have pretty much achieved close to that without that really stunning first year. The main thing is the model. Run an efficient P&C company -> Gather long term float -> Invest that float in stocks and bonds You dont have to be spectacular in underwriting and if you can just get the index returns for stocks and bonds, especially when interest rates are normal, you get outstanding results. Attributing performance is not straightforward. And take Fairfax claims of bond and stock performance with a grain of salt. It is basically an example of "How to Lie with Statistics". But I do not attribute that to any attempt to mislead, just plain enthusiasm. I would give Fairfax one thing, they did the right thing in sticking with cash when bond yields are low, resisting the institutional imperative (as many many investors on this board must have done as well), and invested in bonds when they normalized. Not easy, but they did that really well. Vinod

You did an outstanding job of asset allocation. Just great! Buy an annuity with a small portion of the portfolio. It would be perfect for someone like your grandma. If you buy a $150,000 annuity, she would get about $2700 per month payout for rest of her life. This should pretty much cover her remaining expenses after SS. Keep in mind this is not inflation adjusted, but she has 75% of the portfolio for growth and income. Use the cash portion to buy this. You should be getting $9000 in dividends from VOO, SCHD and FZILX which would be growing. So total you have $3450 in cash coming in per month and you have not touched about $90,000 that is still in money market.

Terrific post. Jerome Powell should get nearly as much credit as anyone else for Fairfax improved performance. Board members are very thoughtful and intelligent and I am not suggesting they fall for these things but there a terrific book that shines light on some of these things. https://www.amazon.com/The-Halo-Effect-Phil-Rosenzweig-audiobook/dp/B002C0CG2Q/?_encoding=UTF8&pd_rd_w=7FDQE&content-id=amzn1.sym.cf86ec3a-68a6-43e9-8115-04171136930a&pf_rd_p=cf86ec3a-68a6-43e9-8115-04171136930a&pf_rd_r=144-1873670-4288829&pd_rd_wg=jNneC&pd_rd_r=f125960c-d014-425f-a302-19a2dd4c96f4&ref_=aufs_ap_sc_dsk Vinod

A Shiller P/E of 34 (as of March 1st) is in the top 1% of history. Total profits (as a percent of almost anything) are at near-record levels as well. Remember, if margins and multiples are both at record levels at the same time, it really is double counting and double jeopardy – for waiting somewhere in the future is another July 1982 or March 2009 with simultaneous record low multiples and badly depressed margins. Jeremy Grantham So he is telling us somewhere in the future there would be a bear market?

I remember "law of large numbers" being thrown about when Apple, Microsoft, Facebook, Google were all in the $100 billion range. The reasoning was, trees dont grow to the sky; companies cannot possible be worth $500 billion which would be insane; competition would increase once companies get to $100 billion market cap; etc. Here we are.

Thanks for the recommendation. Ordered it.

I have been reading Grantham since 2001. Except for calling for Value, Small Value, International and Emerging markets in 2000-2001 time frame and standing up to buy at 2009 bottom, he has been dead wrong on every single thing. What happened to mean reversion? "If corporate profit margins are not mean reverting then capitalism is dead", "profit margins are the most mean reverting of all economic data", etc. Mean reversion in PE? He has been Malthusian for quite a while. Not even a refinement of that. I mean it is good to care about climate but can he not do it in at least an intelligent way? Yes there are finite quantities of many resources, but technology keeps improving and we are able to extract more. Sure at some point we may run out, but it can be 20, 200 or 2000 years from now. There is no convincing argument being made why current time is when we are running out of resources. He is just mentally not fit anymore. Vinod

Just use one brokerage account for long term holds. One for more active holdings. You would hardly ever need to login into that account, mostly to reinvest the dividends. But not seeing them, you end up not even thinking about them much and even if you login into that account, it is easier to avoid tinkering. Maybe that is the way I am, but that helped for me.

Ok

This is exactly what I believed for 20 years. I know the theory. Pretty basic. If you read the economist magazine this is hammered into you all the time. There is a major flaw in this line of thinking. Absolutely massive mistake. Try to find it, it was now well known.

To me it seems like only the part where Government spends directly on goods and services would lead to inefficiency. Say Govt collects 40% of GDP in taxes, gives 25% directly to people for Social Security, medicare, etc. That 25% is still efficiently spend by the people as they are the ones making purchases in an informed way on private goods and services. The other 15% where govt hires and manages things, like IRS agents, Social Security administration employees, direct procurement, etc. This is the part that is inefficient. Wage growth has been impacted mostly due to outsourcing/China which is fed by CEO incentives/stock options.

What killing? It barely kept up with S&P 500 over the last 20 years! An index fund is a better holding especially at size for holding periods measured in decades. I sold BRK in 2012 timeframe to buy BAC and other financials and again during Covid to free up cash to buy other things including BRK calls. So I did not make a lot of money in BRK but the alternatives ended up giving higher returns. Definitely paid lot of taxes. With Fairfax, I actually segregated it into accounts where I have long term holdings like index funds. I think selling Fairfax in the next 10 years would be a mistake. Forget about valuation, keep holding it. There are enough good things in the pipeline that positive surprises are likely to outnumber the negatives. If nothing else should give decent results comparable to market. So why mess with that? Of course, this assumes Prem does not again start "Protecting the shareholders from economic headwinds...."

Somebody in the chain did not get paid.

A different take on "If there is one cockroach..." is "if you find a few gold nuggets, you have probably run into a gold mine". I think the more likely mistake we are likely to make is sell too soon. If it goes up to 1.5x tomorrow, selling out I think would likely be a mistake. The slower it revalues upward the better off we might be. I firewalled off a big portion of FFH into accounts just with very long hold periods that I would not need to touch. Active part with shorter hold periods moved to different account. Vinod

China could very well say "Have 3 kids or you are not eligible for .... services/benefits". Sure it would be slow but in 20 years, they can make up for that shortfall. Have only one kid? Just one hour internet for you in a day.

Take this as: God loves you and want you to be rich