scorpioncapital

How come risk is not in this discussion? Such as for example that these equity returns are variable. Or that the cash might yield 10% at some future date (I know seems unlikely now). Or that my expected horse (not Berkshire) fails to meet my expectation while I watch Berkshire whizz by on an elephant. But yeah, nobody doubts that Berkshire is not going to return the highest in the market, but for many it's the best they can do. And even for some that think they can do better (look at some of the hedge fund records).

"I really am at a loss as to what to do except look at emerging markets or invest in high quality companies at expensive valuations." Or do nothing.

Scenario #3 is the exact same property as Scenario #1 just at a different point in time :)

Canada has its fair share of oppressive and ruthless rules too - I'd say even more so. The only case where a US LLC by a Canadian might work is if the US firm does not have any income effectively connected with a US business operation - i.e. it's just a structure for foreign activities so you'd only be taxed in the home country. But except in this very limited case, I agree it's problematic from a double taxation point of view.

I don't see how inflation will help people's debt. If everything costs double and my salary doubles, my current expenses are the same. If my debt is variable rate it will just increase in cost. If it's fixed rate, perhaps there is some opportunity there for some saving but all this is predicated on debt remaining constant and earning power increasing faster than current expenses. I don't see how this happens for most people on average. Maybe there is another benefit to inflation?

It is odd, UK didn't even use the Euro. I mean the only other pillars really are free movement and common regulations for the market and a membership fee to participate. Really the ultimate end of all this is you go to the Costco model. Just a membership fee and that's it since it appears even free movement is objectionable.

Not to mention the strong influx of eu immigrants who might think the door is closing and want to get in before it slams shut.

Fischer tries to answer this very question in the chapter When to Sell and When Not to Sell. The gist of it seems to be that it depends on whether you bought growth or value. If you buy a Graham one-shot gain type deal then you sell as you didn't really like the company quality. It becomes a sub-category of 'special situations'. The situation is over or goes much higher than you thought you're out. Growth on the other hand, if you selected a quality company and management you may be very wrong on your belief in overvaluation. And even if you're not, what are the odds you'll get back in again when the overvaluation subsides? He says in his experience few ever get back in again. In this sort of situation, even if you don't sell and the stock drops, the idea is it may still be considerably above your purchase price in which case you can add more. This is for the long runway, many decades type growth stock.

And you don't really need it if you are preserving wealth. There you just need to be very careful not to make bad decisions and turn a guaranteed success into a severe failure. If you don't have that much capital, then you have to make a decision what you want to do, go for a potential fast run but an equally fast crash. If you diversify too much you end up with the wealth preservation type returns or slightly better, if you concentrate well you take the risks for the potential gains - like an entrepreneur.

Not sure it's such a free lunch with the tax-free principal residence rules. See - http://www.cra-arc.gc.ca/E/pub/tp/it218r/it218r-e.html Essentially, like everything tax related in Canada, there are implied but not-rule based conditions. I.e. if they want to clamp down on "too frequent flipping" they just have to use some of these ideas here and have a judge interpret it as such. Also there are RE commissions which when I put in some random calculator online for 1.5 million spits out about $52,000 round trip..That is almost (but not quite) the capital gains tax on $400,000 of stock gains.

Who needs stocks with returns like these? Of course the Canadian dollar has tanked 30% since a few years ago so it may be less in foreign currencies. Great for foreign buyers, not so hot for locals.

You get deflation. Or maybe I should say deflationary forces. It may be averted by superhuman efforts by the government and BoC. Right, so would this mean the Canadian dollar gets stronger and since we have such an import based economy day to day life would get cheaper? Well... we don't actually have such an import based economy. Secondly, it's not entirely clear to me that CAD will go up. As I mentioned a bubble burst will have deflationary effects. Those effects will put upward pressure on CAD. On the other hand the federal government will probably start to borrow lots of money - to finance fiscal stimulus, plug holes at CMHC,.... bail out CIBC. Hot RE money will probably start leaving Canada. And, i imagine that Bank of Canada will get really aggressive. All of which will pull CAD lower. It's hard to say for sure what will happen to CAD. My view is that CAD will go lower. My concern is it turns into a Japan style basket case - or a Euro type. Both countries have negative rates and massive QE and yet still can't seem to get their currencies to weaken much versus the US dollar. Yes, in a crash you may have massive government stimulus but there is a lag and the currency between the event and the response could be very much in the opposite expected direction - for a while anyway.

You get deflation. Or maybe I should say deflationary forces. It may be averted by superhuman efforts by the government and BoC. Right, so would this mean the Canadian dollar gets stronger and since we have such an import based economy day to day life would get cheaper?

So if the bubble bursts, do we get inflation or deflation? I see arguments for both.

Define expected return? Stock price or IRR? Your expectation or that of the investment community? The community's perspective will matter more than yours, your expectation will be crushed or over-rewarded. Set your expectation very low, like 'lose everything' and you'll always be pleasantly surprised..

Sorry to revive this but a fantastic article that is exactly about the 'Myths' and misunderstandings of Margin of Safety. One of the best I've read - http://aswathdamodaran.blogspot.ca/2016/05/dcf-myth-31-margin-of-safety-tool-for.html

Also ask yourself: Do you want to keep your own teeth as long as possible or have them yanked out and wear dentures? ;)

Buying debt at 1% - or negative rates in Europe is an investment, just like any investment a company would make with their cash on hand.

You can also buy IBM cheaper than Buffett after 5 years too. Berkshire's goals are 'outcome-capped' nowadays due to size. There is a target return, maybe better, probably spot on and that outcome is usually lower than what most people would want or desire in an unleveraged portfolio. If YOU have float, can wait decades, and put 1% or less of your networth in it, it might be a good idea. But very few individuals are clones of a 350 billion corporation.

Interesting contrarian slant on inflation in Fisher's book, Path to Wealth Through common stocks. He argues that it is the increase in interest rates that causes a snowball increase in inflation.

The bank is always at a higher risk when foreigners are involved. They can just take off. Losses are split 30-70.

Of course, the least they can do for Canadians that pay high taxes is offer a lower down payment :) If offshore tax rates are 0%-15% vs 50%, it amounts to almost the same thing.

Maybe you can use other people's money. If you have a tax debt of 40% but can borrow at 5%, a 100% gain in your investment will offset some of the higher cost tax. It seems unlikely that tax rates will ever approach the rate of interest, if it does, we are all going very broke :)

I wouldn't call the US a high tax country because the level at which the higher rates kick in are - by global standards and for most individuals - outrageously high. For example, the highest rate for capital gains and income in the States is like $250,000-$400,000 US. Except for a few flat tax countries in Eastern Europe, that sort of rate kicks in at a much lower level everywhere else, in some "first world" nations it kicks in as little as $50,000 US.

With a 42% tax rate, I see 4 options, all with pros and cons: 1. Move your residence. 2. Buy something you can hold for a very long time and sell it very rarely. 3. Use any benevolent government programs that protect investment gains, this may include registered accounts or investing through an owned corporation. 4. tax evasion/avoidance of some sort, probably using offshore structures.