# If Warren Buffett started today



## Glen48 (25 August 2011)

Was looking a Buffet and how a lot of his investment are tanking one is BYD elect, cars in China so I was wondering if he started to day would he end up as big as he is now , in the 40 50's etc  nothing could go wrong shares in GE GM AT& T all gold.
 He seems to be out of his depth with Gold and backing  the Feds and no idea depression is coming.


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## NewTrade (25 August 2011)

*Re: IF WARREN BUFFET STARTED TODAY*

I understand what you mean. In a time of growth, and emerging companies in the private sector providing necessity - it is hard to imagine one would make such copious sums of currency. But that is not to say there are no risks.

Buffet is a long term investor, to my knowledge. If Buffet were perhaps young, but posessed the knowledge he has now, I am rather sure than by his latter years, he wil have made some very wise choices.

There was no such time in the history of investing that there was zero risk. One only needs to look at the great depression as an example; as extreme an example it may be.


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## Tysonboss1 (25 August 2011)

The frame work of investing he learned from ben Graham is timeless, sound investment principles don't really change over the decades. 

Of course buffet is working with such huge sums now he is not going to get 25%+ per year as he did back in the day, but he is still beating the index's consistently by a healthy margin.   

In regards your view that all investments seemed to be gold back them that is just plain wrong, it's like saying the last decade is all cheese and biscuits because of Bhp, wow and Cba.


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## skc (25 August 2011)

Uncle Warren just bought $10B shares in Bank of American...

Despite BAC saying for weeks that they don't need additional capital.


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## NewTrade (25 August 2011)

*Re: IF WARREN BUFFET STARTED TODAY*



NewTrade said:


> I understand what you mean. In a time of growth, and emerging companies in the private sector providing necessity - it is hard to imagine one would make such copious sums of currency. But that is not to say there are no risks.




I meant Wouldn't*


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## Wysiwyg (25 August 2011)

I doubt a textile manufacturer would be anything extraordinary nowadays. Must not have been much competition back in the 60's.


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## Tysonboss1 (26 August 2011)

Wysiwyg said:


> I doubt a textile manufacturer would be anything extraordinary nowadays. Must not have been much competition back in the 60's.




The competition was huge, Buffet says Berkshire Hathaway textiles was the Biggest investment mistake he ever made.

He struggled with it for 19years before he shut it down.


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## Glen48 (26 August 2011)

After the war USA had refined mass production and car makers etc were away no restrictions, rules and reg's to hinder then. No emission rules. service men wanting homes Tv etc etc.. So if you had money and time the market was a good place to be.

Now WB has put 5B into BOA and I was lead to believe BOA is on the verge and just received .5 B bailout again.

 Imagine if WB had invested in Gold or maybe he is keen to prop up the pres OB.
Plus most of WB deals with the banks he has a the edge . money and he can dictate the terms.


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## Tysonboss1 (26 August 2011)

Glen48 said:


> After the war USA had refined mass production and car makers etc were away no restrictions, rules and reg's to hinder then. No emission rules. service men wanting homes Tv etc etc.. So if you had money and time the market was a good place to be.
> 
> Now WB has put 5B into BOA and I was lead to believe BOA is on the verge and just received .5 B bailout again.
> 
> ...




WB would never buy gold, especially when it is hitting highs and everything else is on sale.

He has never been a trend follower, he buys value, even against the trend.

here is what he thinks of gold.

.


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## MrMomentum (26 August 2011)

I’ve often wondered if Buffet started today if he would mainly look for low price stocks (e.g under say $5).

I know that he looks for companies that are undervalued (amongst many other things), but if he were starting in today’s market I wonder if lower price stocks with price leverage would be where he would focus his attention.


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## Tysonboss1 (26 August 2011)

Glen48 said:


> Now WB has put 5B into BOA and I was lead to believe BOA is on the verge and just received .5 B bailout again.




I don't know the details of the BOA deal. But I know WB just recently got paid back the $5B by Goldman sachs, he still holds the warrents from that deal.

He was disappointed when GS said they were paying him back because he was earning $15 / second interest on the money. Maybe he has found another similar home for the 5B.


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## Tysonboss1 (26 August 2011)

MrMomentum said:


> I’ve often wondered if Buffet started today if he would mainly look for low price stocks (e.g under say $5).
> 
> I know that he looks for companies that are undervalued (amongst many other things), but if he were starting in today’s market I wonder if lower price stocks with price leverage would be where he would focus his attention.




He has said he doesn't look at the price of the share until he has valued the business.

eg, he works out what a resonable person would be prepared to pay for the whole company, divides that figure by the number of outstanding shares, and if that number is higher than the current share price he may buy it.


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## craft (26 August 2011)

Tysonboss1 said:


> WB would never buy gold, especially when it is hitting highs and everything else is on sale.
> 
> He has never been a trend follower, he buys value, even against the trend.
> 
> here is what he thinks of gold.





Tysonboss1

Any chance of a dedicated thread for these Buffet insight video's you keep finding? or does one already exist?

Cheers


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## MrMomentum (26 August 2011)

Tysonboss1 said:


> He has said he doesn't look at the price of the share until he has valued the business.
> 
> eg, he works out what a resonable person would be prepared to pay for the whole company, divides that figure by the number of outstanding shares, and if that number is higher than the current share price he may buy it.





Hi Tysonboss1,

Any thoughts on how he works out the price a reasonable person would pay?


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## Tysonboss1 (26 August 2011)

MrMomentum said:


> Hi Tysonboss1,
> 
> Any thoughts on how he works out the price a reasonable person would pay?




The concept is simple, But it's application takes alot of knowledge, experiance and effort.

He learned the concept through Ben Grahams book " the intelligent investor", He was so inspired by ben he traveled to columbia university to study under ben, and later worked for Ben's Hedge fund, before starting his own in 1960.

Basically you make an assessment of the earning power of the company or asset, ie. how much cash is it going to generate each year in profits, and then based on that figure you work out how much you are willing to pay for the asset, Some other considerations would have an effect on whether you would be prepared to pay more of less though.

If you want to learn more I would suggest reading Ben Grahams Intelligent investor and security analysis.


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## banco (26 August 2011)

I've seen some suggestions that the markets are more efficent now than when Buffett was making the big returns but Michael Burry (who's is mostly famous for his bets on US housing) was a value investor who had very good returns in the past 10 years.


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## Tysonboss1 (26 August 2011)

banco said:


> I've seen some suggestions that the markets are more efficent now than when Buffett was making the big returns but Michael Burry (who's is mostly famous for his bets on US housing) was a value investor who had very good returns in the past 10 years.




Well buffett is still out performing the market,

I would suggest with all the hyperactive trading, stop losses, margin loans etc.etc the market is less efficent.

Hasn't the last 5 years prooved this, I mean in the last 5 years at what point was the price of Bhp efficent was it when it was

$25 in in 2006 or
$50 in 2007 or 6 months later at
$20 or one year later at
$37 or a year later at $49
or now at $38.

The very fact that a large majority of people ignore value investing and instead use TA or trend following means that the market will not be efficent.

Also with most people prefering to trade and constantly swinging between cash and stocks, and dumping stocks at the first sign of trouble it means the high and lows will always be out of proportion with the true value.


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## Tysonboss1 (26 August 2011)

Glen48 said:


> Imagine if WB had invested in Gold.




We would never have heard of him, If he took his $10,000 starting capital in the 50's and held it in gold all this time he would not be even a millionaire, let alone a billionaire in the top three richest.

Instead he took his $10,000 and bought income producing assets and is now worth $40,000,000,000.



This reminds me of a saying, "Time is the friend of the good investment and the enemy of a bad one"

By Buying income producing assets that throw off income he could reallocate into other investments his system produced massive compounded returns.

This is why to this day he doesn't buy gold, No conspiracy theory needed, it's just gold doesn't throw off income.


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## NewTrade (26 August 2011)

What you are saying makes a heck of a lot of sense Tyson. Quite enlightening.


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## davede (27 August 2011)

Good stuff Tyson!

Love the Buffet videos. Especially his quote on gold

"I don't do anything. I just stand here and look pretty."

love it.

I think we can all agree Buffet is a value investor. He invests in predominantly companies. 

That being said he is one of many extremely successful and intelligent investors who don't necessarily limit themselves to one particular asset class; Soros and Tudor Jones being two of my favourites.

The market certainly values his pickings though. B of A shares went up 22% after he announced his US$5 bn purchase of preference shares in the company.

However a lot of commentators have been quick to point out what happened to Goldman's share price after he bought in late 2008.

On the subject of different investment periods. It is worth noting that that 69 to 82 was one of the longest secular bear markets in history. Holding the index would have netted you (post inflation) almost nothing. So to succeed during such a period demonstrates remarkable finesse.


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## craft (27 August 2011)

davede said:


> On the subject of different investment periods. It is worth noting that that 69 to 82 was one of the longest secular bear markets in history. Holding the index would have netted you (post inflation) almost nothing.




Does this statement take into account reinvestment of dividends?

The longer the investment horizon, the more important is the dividend income.

For the period 1900 to 2009 the historical inflation adjusted returns (Real) for US equities is 6%. Capital gains accounts for 1.7%.of that.

Capitalising $1 at 1.7% for 109 years = $6
Capitalising $1 at 6% for 109 years = $573

I’m not sure what the dividend yields were through 1969-1982 but I suspect Buffett was a pig in mud compounding cash flow yields.

Despite the doom and gloom, I see the same opportunities now.


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## Tysonboss1 (27 August 2011)

craft said:


> I’m not sure what the dividend yields were through 1969-1982 but I suspect Buffett was a pig in mud compounding cash flow yields.




he sure was,

In 50 years Berkshire has not paid a dividend, every single cent of interest, dividend and profit it generate on it's investments was reallocated back into buying more investments.

Hence why berkshires shares have gone from $9 to well over $100,000.00 for each share.

He promised shareholders that as long as he was outperforming the market by a certain % over a rolling 5 year period he would retain all cashflow and keep compounding.

If he failed to outperform the index he would start paying dividends and allocating capital back to shareholders.


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## McLovin (27 August 2011)

craft said:


> Does this statement take into account reinvestment of dividends?
> 
> The longer the investment horizon, the more important is the dividend income.
> 
> ...




I read a research note a few weeks ago that said the ASX on an inflation adjusted basis is at the same level it was in the late 60s. Of course that excludes dividends and indeed the All Ords Accumulation index has a base of 1000 from 1980 and is up in the 30k region now.


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## Tysonboss1 (27 August 2011)

Some people ask,

" If buffet was truly such a good allocator of capital and it wasn't just luck he made it where he did, why isn't he still earning +25% returns?"

The truth is it is because of his such large capital base, It is impossible for him to spend the time finding all those little niche capital allocations where you can place sums of less than a million and earn high yields,

The companies that Berkshires owns outright and their stock investments produce cashflow of $100,000,000.00 thats $100Million a week.

Could you imagine how hard it would be to allocate that amount of capital each week and still beat the index.

 He is doing a great job of beating the index, especially when you consider he has $35Billion in bonds earning small interest.

I don't know many people who could manage that amount of capital aswell as he does, with almost no help or support.


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## McLovin (27 August 2011)

MrMomentum said:


> I’ve often wondered if Buffet started today if he would mainly look for low price stocks (e.g under say $5).
> 
> I know that he looks for companies that are undervalued (amongst many other things), but if he were starting in today’s market I wonder if lower price stocks with price leverage would be where he would focus his attention.




Why would nominal price have any bearing on investment decision?


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## Tysonboss1 (27 August 2011)

McLovin said:


> I read a research note a few weeks ago that said the ASX on an inflation adjusted basis is at the same level it was in the late 60s. Of course that excludes dividends and indeed the All Ords Accumulation index has a base of 1000 from 1980 and is up in the 30k region now.




I would be checking their sources of infomation and calculations before I paid heed to that,

Think about how small Australia's capital markets were back then, All of our industry was much smaller, population smaller. etc.etc

I think there must be a flaw in their calculations some where. 

But again it's the compounding of earnings that count,

I mean even something as simple as a house, after 50years you may say it only outpaced inflation by say 1%(population growth driven). but the fact it produced cashflow from the rent less maintaince might mean your one house turned into a portfolio of three houses over that time. So the inflation adjusted capital gain is not a good representation of the return on investment.


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## McLovin (27 August 2011)

Tysonboss1 said:


> I would be checking their sources of infomation and calculations before I paid heed to that,
> 
> Think about how small Australia's capital markets were back then, All of our industry was much smaller, population smaller. etc.etc
> 
> ...




I wouldn't be so sure the numbers are wrong. Remember that until the 1990's inflation was high. According to the RBA between 1967 and 1990 inflation averaged 8.4% (in the 70s it was averaging over 10%), from the period 1990-2010 it has averaged 2.6%.


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## Tysonboss1 (27 August 2011)

McLovin said:


> I wouldn't be so sure the numbers are wrong. Remember that until the 1990's inflation was high. According to the RBA between 1967 and 1990 inflation averaged 8.4% (in the 70s it was averaging over 10%), from the period 1990-2010 it has averaged 2.6%.




Yes, but it doesn't matter what the inflation rate was because the numbers were adjusted for inflation. 

What it is saying is that outside of inflation the stockmarket did not grow, but over that time there was massive grow in the general economy so it would be hard to believe the companies listed didn't grow. 

That being said I have not looked into it, it may be that the companies did grow, but were over valued at the start of the period or under valued at the end.


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## Wysiwyg (27 August 2011)

Tysonboss1 said:


> The competition was huge, Buffet says Berkshire Hathaway textiles was the Biggest investment mistake he ever made.



Have you thought of creating a company to invest other peoples money in value stocks? He did make his first million through partnerships didn't he and did that involve pooled funds?


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## Tysonboss1 (27 August 2011)

Wysiwyg said:


> Have you thought of creating a company to invest other peoples money in value stocks? He did make his first million through partnerships didn't he and did that involve pooled funds?




Yes, he worked for ben Graham's partnership for a number of years before ben wound it up and retired from money management. 

He then started his own small fund investment fund, 

No I would not think of starting a fund, my own funds keep me going.


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## davede (27 August 2011)

craft said:


> Does this statement take into account reinvestment of dividends?
> 
> The longer the investment horizon, the more important is the dividend income.
> 
> ...





Good stuff.

should have been more specific on that one. yep was ignoring dividends there - the value investors best friend


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## McLovin (28 August 2011)

Tysonboss1 said:


> Yes, but it doesn't matter what the inflation rate was because the numbers were adjusted for inflation.




Of course it matters what the inflation number was. If inflation was 1% then the market needed to advance by more than 1% to grow in real terms, if inflation was 10% then the market needed to grow by 10% just to tread water. Inflation kills companies, especially CAPEX heavy mining companies (which is what made up the bulk of the ASX back then). Buffet's 1981 Letter explains the link quite well.

If you accept that over that period the inflation rate was 5.6% (per the RBA), then excluding dividends is going to get a real return very close to zero, wouldn't you say?

I'll try and find the research.


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## McLovin (28 August 2011)

I couldn't find the research, but I found this. http://www.wrenresearch.com.au/downloads/

The All Ords in 1969 was around 400 (having had a pretty good run up over the past few years). 400 adjusted for inflation would today be 4073.


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## craft (28 August 2011)

I only have CPI data going back to 1969.


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## McLovin (28 August 2011)

craft said:


> I only have CPI data going back to 1969.
> 
> View attachment 44237




Where's the CPI data coming from? I used the RBA which gave 4073. http://www.rba.gov.au/calculator/annualDecimal.html


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## craft (28 August 2011)

McLovin said:


> Where's the CPI data coming from? I used the RBA which gave 4073. http://www.rba.gov.au/calculator/annualDecimal.html




From The RBA. Chart might be a bit small to read, but it shows XAO at around 4000 at its starting point of Sep 69. So I don't think we are in disagreement.

Cheers


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## McLovin (28 August 2011)

craft said:


> From The RBA. Chart might be a bit small to read, but it shows XAO at around 4000 at its starting point of Sep 69. So I don't think we are in disagreement.
> 
> Cheers




Sorry, my mistake. Had a largish night on the jars after the rugby, so I'm a touch dusty today.

Inflation really punched a hole in those returns early on. 4000 to near 1000 in the space of a few years: Ouch.


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## banco (28 August 2011)

Some of his deals these days seem to be about renting out his name/reputation for a very large fee (ie Goldman Sachs and Bank of America).


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## Tysonboss1 (28 August 2011)

McLovin said:


> Of course it matters what the inflation number was. If inflation was 1% then the market needed to advance by more than 1% to grow in real terms, if inflation was 10% then the market needed to grow by 10% just to tread water. Inflation kills companies, especially CAPEX heavy mining companies (which is what made up the bulk of the ASX back then). Buffet's 1981 Letter explains the link quite well.
> 
> If you accept that over that period the inflation rate was 5.6% (per the RBA), then excluding dividends is going to get a real return very close to zero, wouldn't you say?
> 
> I'll try and find the research.




Yes, I understand the concept.

But what I was saying is, when the figures are already adjusted for inflation, why would it matter what the inflation was over that period.


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## McLovin (28 August 2011)

Tysonboss1 said:


> Yes, I understand the concept.
> 
> But what I was saying is, when the figures are already adjusted for inflation, why would it matter what the inflation was over that period.




Because it goes a long way to explaining why the market in real terms is about where it was 44 years ago.

You questioned whether the claim -- that market hasn't moved in real terms by much -- was correct, I was attempting to explain why it was believeable.


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## Tysonboss1 (28 August 2011)

banco said:


> Some of his deals these days seem to be about renting out his name/reputation for a very large fee (ie Goldman Sachs and Bank of America).




I think it just goes back to what he said in 2008. He wants Berkshire to be the lender of last resort. Obviously the charge accordingly. But he has always looked to allocate large sums into good businesses when the market is thinking otherwise. Remember American express, probably his biggest win ever.


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## banco (28 August 2011)

Tysonboss1 said:


> I think it just goes back to what he said in 2008. He wants Berkshire to be the lender of last resort. Obviously the charge accordingly. But he has always looked to allocate large sums into good businesses when the market is thinking otherwise. Remember American express, probably his biggest win ever.




But he's hardly the lender of last resort. BofA could have raised the money more cheaply elsewhere. They got it from Buffett (with a big premium attached) for the PR value.


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## Glen48 (28 August 2011)

In WB days the world was USA now it has all changed Apple develops a new phone using Uni grad's etc  send it to some over seas company to build, no one in USA gets a look in'

GM or Ford built the muscle cars and any one who know the difference between up and down got a job and the market was not saturated with cars like today.

Only one's who think we will have full employment are lying polies  we can't go back to the good times of 50 late 80's the new jobs are going to be in nano tech, robots medicine etc. which means you need more degree's than a thermometer to get a job other than floor sweeper the average man on the street will be on the street.

There will be some good companies to invest in but the general employing works with average I Q's will be thin on the ground.


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## ENP (29 August 2011)

The question I have, if Warren Buffett ignores everyone else and doesn't pay any attention to the media, why is the quoted that he reads 3-4 newspapers per day?


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## VSntchr (29 August 2011)

ENP said:


> The question I have, if Warren Buffett ignores everyone else and doesn't pay any attention to the media, why is the quoted that he reads 3-4 newspapers per day?




Everything is a type of media. The newspapers he reads most likely relate to mainstreet activity rather than wall street activity


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## Tysonboss1 (29 August 2011)

ENP said:


> The question I have, if Warren Buffett ignores everyone else and doesn't pay any attention to the media, why is the quoted that he reads 3-4 newspapers per day?




He is a hyperactive learner, he reads everything, but the catch is he takes notice of facts and then forms his own opinion.

The way to treat a news paper is not as a sole source of information, but rather to give you leads into topics that may require further examination and research, you don't just read the headlines at face value.


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## Tysonboss1 (29 August 2011)

banco said:


> But he's hardly the lender of last resort. BofA could have raised the money more cheaply elsewhere. They got it from Buffett (with a big premium attached) for the PR value.




Yes your right, it does send a message out that Warren has run his ruler over the company and it meets certain criteria.


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## Tysonboss1 (30 August 2011)

Glen48 said:


> the new jobs are going to be in nano tech, robots medicine etc. which means you need more degree's than a thermometer to get a job other than floor sweeper the average man on the street will be on the street..




Yes their will be new jobs created in those areas, But if those areas grow so will all the other areas, The biggest flaw in the "New economy" Idea is that people think the "old economy" companies become less significant.

Heres the thing, not matter how much nano tech, medicine etc etc advance we still need, Mines, trucks, bricks, tiles, capet, paint, bread, meat,grain, coffee shops, pubs and clubs, and the million other industries that make up the economy.

People have been using that arguement since the pc took over from the typewriter, and what happened there, 1000's of othr jobs have popped up in un thought of industries,


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## Glen48 (30 August 2011)

I was talking about manual labour type work including  worker's on assemble lines they have gone for ever , carpet paint etc all made over seas in some automated computerised machine designed in USA built in China. 
Pubs clubs painters etc yes but will need more for full employment
As I said look at the Iphone only people who got a job in USA out of the development are sales people.
 If people don't have a job or are on lower wages they will buy the survival items only.

  Back to Buffett he now has money and can dictate the terms and the rest follow like sheep  so BoA get live another day Buffett cash's in and OB looks good, WB knows his money is safe because the to big to fail will be supported  by the Feds.


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## Tysonboss1 (30 August 2011)

Glen48 said:


> WB knows his money is safe because the to big to fail will be supported  by the Feds.




Thats another myth,

Yes there are some companies that are to big to fail, But this doesn't mean the government or fed steps in to safe equity holders.

They step in to save the day to day operations, and stop the next dominoe falling.

Alot of the businesses that were "bailed out", Had their equity holders take huge hair cuts through dilution.

Buffett has openly said he would never buy an "attractive security" if he wouldn't feel comfortable holding the underlying business.

Bernake has said that when it steps into to save a to big to fail or buy a distressed asset he is looking to make a profit, and thats going to be at the expense of current equity holders, It's actually a fact the the government bail outs have not cost the US government a dime, they have generated profits.


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## Tysonboss1 (30 August 2011)

Glen48 said:


> I was talking about manual labour type work including  worker's on assemble lines they have gone for ever , carpet paint etc all made over seas in some automated computerised machine designed in USA built in China.




Probably made using raw materials and energy sourced from Australia, needing australian workers in mining, transport. the chinese workers fed using australian meat and grain needing aussie workers again, the chinese workers take aussie holidays again needing more aussies in the service indusrty, All these aussie workers again need cars serviced, kids educated, Fed, etc.etc.

It's a global economy, nothing wrong with that, different nations are suited to different things.


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## Tysonboss1 (30 August 2011)

Wysiwyg said:


> He did make his first million through partnerships didn't he and did that involve pooled funds?




I found two videos I thought you might like,

the first is from a guy who lived across from Buffet in the 60's and who refused to join Buffets fund, the second is an interview with a guy who did invest in buffets fund.


The interview starts at the 6min video, you can skip to it by clicking on the sliding bar on the bottom, But the whole 10min vid does has some good insights.


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## Wysiwyg (30 August 2011)

Tysonboss1 said:


> I found two videos I thought you might like,
> 
> the first is from a guy who lived across from Buffet in the 60's and who refused to join Buffets fund, the second is an interview with a guy who did invest in buffets fund.



Don chose a different path hey. 
Pleasing to see Dick Holland giving some of his massive wealth to the community for everyone to benefit. Life changing decisions for both.


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## Tysonboss1 (30 August 2011)

Tysonboss1 said:


> Bernake has said that when it steps into to save a to big to fail or buy a distressed asset he is looking to make a profit, and thats going to be at the expense of current equity holders, It's actually a fact the the government bail outs have not cost the US government a dime, they have generated profits.




Here is a Video that shows Mr B explaining this.

Use the slide bar to fast forward to the 3 min mark.


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## gav (31 August 2011)

*Buffett, champion of bailout, is also leading beneficiary*

"That total, The Bee found, ranks Berkshire fifth among all investors in TARP-assisted companies. Berkshire's TARP holdings constitute 30 percent of its publicly disclosed stock portfolio, and that proportion reflects at least twice as much dependence on bailed-out banks as any other large investor."

Read more: http://www.mcclatchydc.com/2009/04/05/65496/buffett-champion-of-bailout-is.html#ixzz1WbV4yPlF


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