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Grandma's investment portfolio


tooskinneejs
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I recently re-read Buffett's 2013 shareholders' letter in which he recommends an investing approach for non-professional investors as follows (this is how his cash will be invested for his wife):

 

"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."

What would you recommend for a 70 year old grandmother who doesn't know a thing about investing, but is both patient and won't need access to the money being invested (i.e., she has other funds off of which to live comfortably)?

 

Thanks.

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"What would you recommend for a 70 year old grandmother who doesn't know a thing about investing, but is both patient and won't need access to the money being invested (i.e., she has other funds off of which to live comfortably)?"

 

ask her heirs

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ask her heirs

+1 to cherzeca.

 

Let them do it, it's their money anyway. They can be as stupid as they wanna be with it.

 

But the OP's question I think is a bit redundant on this board where we are doing research as active investors in order to get bigger returns than the S&P.

 

Now the advice in the 2013 letter is great. What the OP must realize is that advise was directed to a general audience. Buffett wrote it like a he would write and Op-ed in the New York Times. Aimed at a general public audience that is totally ignorant about anything relating to finance. For me it is a source of unlimited bewilderment why the general population would do endless research to save $50 on HDTV be are so ignorant and cavalier with thousands upon thousand of their savings. This is not limited to plebs, it extends to people that have millions upon millions. But that's another topic.

 

To the OP. It's great you read the 2013 letter advice. But you know what's also in the BRK letters? Since I don't know when, in the BRK letters there has been a section that details in a few points a business that Berkshire would be interested in buying. A couple of weeks ago I was pitching a potential client who only invested in super safe shot term bonds cause he was so afraid of anything else. So what I did was set up a crude filter based on those criteria in the BRK letter and applied it the universe of public stocks. Took the resulting companies and printed them on a dart board. We each took 7 shots. We did this for 2 hours. Every time the portfolio of 7 absolutely shamed the S&P over a time period 10 years or longer. The guy signed to an all equity mandate in the room.

 

This information has been in the letters for decades. Yes, it's didn't have a flashing neon arrow pointing to it, but it was there. Read the letters with an open, inquisitive, and critical mind. There's more there than you think!

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Every time the portfolio of 7 absolutely shamed the S&P over a time period 10 years or longer.

 

Survivorship bias much.

 

If it was so easy to beat SP500, this forum would be empty and/or you'd be managing billions.

 

In reality even on this forum majority do not outperform SP500 long term.

Well... I'm not managing billions. I don't see what that has to do with anything. Cause there are not tons of managers out there that manage billions and consistently underperform and there are not managers that manage millions and overperform. I hate to break it to you but in this business there isn't as much correlation between the performance and AUM as talking heads would profess. Even if I'd be beating the S&P by 15% a year consistently I wouldn't manage 1 billion dollars. Thanks Fama! Despite all of that I make good money and I have a great relationship with my clients and while it certainly would be great if I made more, life is pretty good.

 

Normally, your comment about survivorship bias would be a good guess. However you discount the initial premise of the filter. There haven't been a whole slew of businesses that among other things are low tech, have a long and consistent history of profitability, and high unlevered ROEs that bit the dust in the past 10 years. Btw, for simplicity I threw in a market cap of over $3 Bn. There's probably a dash of survivorship bias but it is negligible compared to the sheer number of companies. This would begin to be self evident when you look close at those BRK criteria and realize that they are geared toward longevity of companies.

 

There were some surprises as we threw the darts and pulled data. For example in my view P&G did extremely poorly and Honeywell did surprisingly well.

 

As for the performance of this board vs the S&P I don't know. I'm sure members are tiring to beat the S&P. Are they successful? Pretty sure a good number are. There's a lot of very good narrative here that's why I spend valuable time sharing ideas. I'm also sure a lot aren't. Just look how many people were long and strong valeant - which is as far from a secure and long term business (as per BRK purchase criteria and others) as you can get.

 

To each their own. But to get back to your premise, if you can show a significant survivorship bias over the past 10 years based on the BRK buying principles, I will eat my words, the sole of my shoe, and I'll take you out for a steak dinner.

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I read op as getting at the bond allocation.  Bogle has some rule of thumb about your age in bonds minus 30 or something like that.  Personally, I figure I might stick around 70-30 or 80-20 when I'm retired, assuming a 4% withdrawal rate that is like 5 to 8 years in spending that I would have in intermediate treasuries (not counting any defined benefits) and I could rebalance via my withdrawals in a crash scenario while I waited it out.  I figure I don't want to get too conservative with inflation in healthcare costs being insane.

 

I could see doing 90-10 if I was going to be like Astrid, with millions and living like a middle class, Midwestern gal.  I'm sure Mr. Buffett will be comforted by my concurrence.  ;D

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Buffett and Munger gave a lengthy answer to the question of Sequoia fund's blow up with Valeant. How it started with Buffett moving many of his partners in 1969 etc.

 

Buffett then commented that he was looking for people to start a fund with a long track record and the qualities required and he could not think of any more names than Schloss and Munger at that time. "Trying to find managers that are worthy is like looking for a needle in a haystack" were Munger's comments.

 

Put that in the context of posters with aliases on a message board and claims of their market beating returns. This board has been up for <10 years. Is it possible? Sure! I'd think that it is a slight bit likelier amongst folks managing their own money and following recommendations in the Berkshire Hathaway letters. 50 years is a different lens! Lots of pretense is possible in the mean time.

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