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Old 05-11-2018, 11:56 AM
 
8,563 posts, read 2,392,842 times
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Ah, the power of compounding.
Add to it a belief in America and one could definitely find a good way to invest for retirement...or, to rule the world with their wealth.

As a "thought experiment", I recently asked myself "What are the returns, since 1975, made by the S&P, Warren Buffet and Trump?". These are very distinct investment strategies - one being the basic index, the second being a picker of companies that are very solid using metrics and measurements and the third being largely a Speculator - Real Estate, Casinos, etc...

I used 60 Million dollars in 1975 as a baseline - only because that is somewhat in the ballpark of Trumps wealth at that time. No exact figure is available, but his parents Real Estate company was valued at 150-300 Million (and they had other wealth) and he got a solid part of that and took over the company. So 60 Million is a decent figure to use by 1975 (Trump had changed the company name to his and had been running it for a few years)...

Here is what I came up with. Those of you who are math geniuses - feel free to correct my figures.

1. The S&P is up approx. 10,000% since 1975. That means 100X as large. 60 Million would be 6 Billion, not a bad return for sitting by the pool (no work required - just buy a vanguard fund and watch)...

2. Warren Buffet - Berkshire - one chart I found showed that $1,000 invested in 1975 would be 3 MILLION dollars today. If my math is correct, that means 60 Million invested in 1975 would be 180 BILLION today. Certainly this beats the S&P and would make the owner the wealthiest person on the planet - twice as wealthy as Buffet himself.

3. Trump Organization - despite the ups and downs (probably worth close to zero at some times), it appears the current value of this investment is about 3.5 Billion dollars.

When I first looked at these number I thought there must be something wrong....and maybe there is. I did all the calcs "in my head", but still they appear to be right unless I misplaced a zero. I used 1975 since that was about the solid beginning of my own working life (I had jobs before then, but worked more seriously and full-time plus from then on).

Personally, I'm voting a little bit with my $$$ - Berkshire Hathaway is now the single largest stock holding I own. I don't expect to make billions, but do expect to "beat the market" by a percent or two. Also, and perhaps most importantly, the investment seems very stable and conservative. I won't be subject to speculation (or at least not as much), total collapses of the banking or real estate sectors (Berkshire is diversified - big in insurance, railroads and much more)...or to Fast Money ups and downs.
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Old 05-11-2018, 12:08 PM
 
17,626 posts, read 12,211,350 times
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The performance vs the s&p out of 1, 3, 5, 10 and 15 years brkb outperformed on a 1 year and 15 year basis with the s&p taking the middle years. The difference seems meh
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Old 05-11-2018, 08:19 PM
 
8,563 posts, read 2,392,842 times
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Quote:
Originally Posted by Lowexpectations View Post
The performance vs the s&p out of 1, 3, 5, 10 and 15 years brkb outperformed on a 1 year and 15 year basis with the s&p taking the middle years. The difference seems meh
That's short term - because those of us who invest for retirement and life usually have 30+ year windows and even longer. I'm 64 and have been investing since I was 28 - so it's 36 years and counting.

By it's very nature, the S&P often consists of companies at their peak already - like investing in IBM 10 or 20 years ago...not too great. Berkshire can pick and choose much more.

Maybe it's me, but I do feel a bit safer with Buffet - although I do own some index funds. After having been through the 82 crash, the savings and loan debacle, the dot-com boom and then the Great Recession, it's important that one just hang on to solid investments.

Those who pick and choose themselves and trade often can, IMHO, more easily be spooked and sell out at just the wrong times. I have three people in my close family who did so at great loss. Another had an entire retirement based on Lucent (he worked there) which went from 70 a share to $2....and that was that.

Real Estate Speculation (Trump style) as well as gambling doesn't seem to work out too well either (it did for some Indians and the Mob in vegas tho)....the returns being 1/2 or less of if you did the S&P. In fact, treasuries were quite high in those first year and one could have invested in long term treasuries or CD's and gotten close to the S&P numbers....even higher if timed right.

The only Real Estate I own are my homes...and also I do have shares in a couple REITS which I feel are fairly smart and diversified (they pay 8-9% yearly).
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Old 05-11-2018, 08:37 PM
 
17,626 posts, read 12,211,350 times
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Quote:
Originally Posted by craigiri View Post
That's short term - because those of us who invest for retirement and life usually have 30+ year windows and even longer. I'm 64 and have been investing since I was 28 - so it's 36 years and counting.

By it's very nature, the S&P often consists of companies at their peak already - like investing in IBM 10 or 20 years ago...not too great. Berkshire can pick and choose much more.

Maybe it's me, but I do feel a bit safer with Buffet - although I do own some index funds. After having been through the 82 crash, the savings and loan debacle, the dot-com boom and then the Great Recession, it's important that one just hang on to solid investments.

Those who pick and choose themselves and trade often can, IMHO, more easily be spooked and sell out at just the wrong times. I have three people in my close family who did so at great loss. Another had an entire retirement based on Lucent (he worked there) which went from 70 a share to $2....and that was that.

Real Estate Speculation (Trump style) as well as gambling doesn't seem to work out too well either (it did for some Indians and the Mob in vegas tho)....the returns being 1/2 or less of if you did the S&P. In fact, treasuries were quite high in those first year and one could have invested in long term treasuries or CD's and gotten close to the S&P numbers....even higher if timed right.

The only Real Estate I own are my homes...and also I do have shares in a couple REITS which I feel are fairly smart and diversified (they pay 8-9% yearly).

Iím not sure if you are aware the Buffet held a rather large amount of IBM that he only sold completely out of in Q1 right? The entire pick and choose portion would be a point that Buffet himself would say favors the index. Sure you could outperform but you can underperform too. The issue I see with BRKA/BRKB aid the size, itís much larger than it was 10-20+ years ago making it continually harder to manage the funds as effectively as you did before
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Old 05-12-2018, 08:28 AM
 
8,563 posts, read 2,392,842 times
Reputation: 8146
Quote:
Originally Posted by Lowexpectations View Post
Iím not sure if you are aware the Buffet held a rather large amount of IBM that he only sold completely out of in Q1 right? The entire pick and choose portion would be a point that Buffet himself would say favors the index. Sure you could outperform but you can underperform too. The issue I see with BRKA/BRKB aid the size, itís much larger than it was 10-20+ years ago making it continually harder to manage the funds as effectively as you did before
Yeah, he sold it and bought Apple. But each ends up being a small part of the entire portfolio.

This is why he doesn't make the 500% returns in 5 years as would a real speculator in Apple, Amazon, FB, Google and the like.

You are correct- bigger money gets harder to handle. That's probably why he has stated that returns in the single digits are the future (as opposed to the double digits of the past). I'll be real happy with 8 or 9% yearly increases from my entire portfolio. Right now I'm at closer to 11 (since 2003 - as far as the web site allows one to search) on my own trading (Fidelity) and about 6% on various Mutual funds (including a lot of bond funds) on Vanguard - so maybe an average of about 8% plus.

That will keep me happy for now. However, it does look like interest rates could shoot up...always depends on how high. This will lower the "real returns".
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Old 05-12-2018, 07:34 PM
 
535 posts, read 514,126 times
Reputation: 1057
Quote:
Originally Posted by craigiri View Post
Ah, the power of compounding.
Add to it a belief in America and one could definitely find a good way to invest for retirement...or, to rule the world with their wealth.

As a "thought experiment", I recently asked myself "What are the returns, since 1975, made by the S&P, Warren Buffet and Trump?". These are very distinct investment strategies - one being the basic index, the second being a picker of companies that are very solid using metrics and measurements and the third being largely a Speculator - Real Estate, Casinos, etc...

I used 60 Million dollars in 1975 as a baseline - only because that is somewhat in the ballpark of Trumps wealth at that time. No exact figure is available, but his parents Real Estate company was valued at 150-300 Million (and they had other wealth) and he got a solid part of that and took over the company. So 60 Million is a decent figure to use by 1975 (Trump had changed the company name to his and had been running it for a few years)...

Here is what I came up with. Those of you who are math geniuses - feel free to correct my figures.

1. The S&P is up approx. 10,000% since 1975. That means 100X as large. 60 Million would be 6 Billion, not a bad return for sitting by the pool (no work required - just buy a vanguard fund and watch)...

2. Warren Buffet - Berkshire - one chart I found showed that $1,000 invested in 1975 would be 3 MILLION dollars today. If my math is correct, that means 60 Million invested in 1975 would be 180 BILLION today. Certainly this beats the S&P and would make the owner the wealthiest person on the planet - twice as wealthy as Buffet himself.

3. Trump Organization - despite the ups and downs (probably worth close to zero at some times), it appears the current value of this investment is about 3.5 Billion dollars.

When I first looked at these number I thought there must be something wrong....and maybe there is. I did all the calcs "in my head", but still they appear to be right unless I misplaced a zero. I used 1975 since that was about the solid beginning of my own working life (I had jobs before then, but worked more seriously and full-time plus from then on).

Personally, I'm voting a little bit with my $$$ - Berkshire Hathaway is now the single largest stock holding I own. I don't expect to make billions, but do expect to "beat the market" by a percent or two. Also, and perhaps most importantly, the investment seems very stable and conservative. I won't be subject to speculation (or at least not as much), total collapses of the banking or real estate sectors (Berkshire is diversified - big in insurance, railroads and much more)...or to Fast Money ups and downs.
Trumpís father gave him a million dollars and that is how he started. His fatherís company was worth 70-200 million back then but it didnít have anything directly to do with his son when he ventured into manhattan real estate. Donald Trump made deals to get a convention center built (the Javitz center but he only set up the deal and got paid a finders fee of 875k), to buy and renovate the commodore hotel across from grand central and it became the grand Hyatt (I think it was a 99 year lease) and then Trump Tower.

In all of this he never actually put up any of his own money (aside from legal and rendering expenses). He negotiated contracts to acquire rights to build or buy or lease land and got financing from banks contingent on acquiring those rights. So the starting point really is the cost of legal, feasibility studies and rendering expenses. Of course it helped that Trump looked the part and the 1 million dollars his father gave him certainly set him up with his studio apartment on 3rd ave, money to hire some legal advisors, to dress well, entertain and etc. Could a regular joe do the same back then. Yes of course but there is much more freedom when you can seek out deals and donít have to worry about what everyone else does.
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Old 05-12-2018, 09:53 PM
 
535 posts, read 514,126 times
Reputation: 1057
Buffet certainly is the winner here. Trump’s father gave him a million dollars and he turned it into 10 Billion according to him or closer to 5 billion currently according to other sources. Whatever the case it is an amazing feat. Trump’s issue is that he became a billionaire in the 1980’s but he ventured outside of real estate development and got involved in casinos. Those AC casinos made a lot of money but Trump paid too much for them (he didn’t design or build from scratch but bought already built structures that were constructed poorly and needed a lot of work) and it became difficult to pay back the bonds with 14 percent interest. He also made a mistake paying too much for The Trump shuttle and Plaza Hotel.

After this debacle ended in the first part of the 90s, Trump became reluctant to take on risk and only would do deals with partners where he owned only a percentage. You can’t make as much when you don’t commit your capital or take on loans yourself for projects. He had a lot of great opportunities in the late 90s early 2000s including owning part of the Empire State Building and the GM building (Apple store location). Unfortunately he sold out (because of partners forced to do so in some cases) before the real estate boom and great price appreciation. He put his efforts into managing properties and leasing out the rights to his name for residential properties and hotels around the world but did not do as much residential property development. It’s good income to the tune of 50-100 million a year but one isn’t going to multiply the billions when you don’t look to make capital gains like putting up 432 park avenue or One 57 for 1 billion and selling the apartments for 2 billion or more. Even with property development you have to reinvest the profits in new projects if you sell all the apartments. Trump did make a smart move retaining ownership of most of the parking garages and roof and some ground floor retail space in buildings he put up or bought in the lates 80s to early 2000s even after selling the apartments.

It seems that once he got into reality television with the apprentice he got back to his old tricks deviating from property development (Trump World Tower in early 2000s was a big accomplishment for its time) and pursued easy money with Trump loans, Trump magazine, Trump university, Trump steaks and etc. just renting out his name. He didn’t realize that while it gets his brand out there it hurt his reputation. Trump’s personal tastes are stuck in the 80s/early 90s and of the few developments he did put up in the last ten years they are a far cry from the modern and high end projects built in NYC in the last 6 years. The Trump Las Vegas Hotel probably was his most successful venture in the last ten years because he owned 50 percent of the beautiful gold tinted building (owns 33 percent now due to sales of condo units). The area he has done very well on is with his golf courses but returns are spread out over time.

Trump should be worth 20 Billion if he focused on his old bread and butter of property development and owned 100 percent of the projects. Buffet of course has it easier because he doesn’t actual run any businesses and can invest in a variety of companies and industries instead of focusing on property development.

Last edited by john620; 05-12-2018 at 10:01 PM..
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