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89 comments
> We need more like him
I disagree. We need less people like him (I mean people wealthier than some countries). Let the government manage social services. Some people depend on charities, that themselves depend only on the good will of those people, and I don't think that's wise.
I disagree. We need less people like him (I mean people wealthier than some countries). Let the government manage social services. Some people depend on charities, that themselves depend only on the good will of those people, and I don't think that's wise.
The problem with allowing the government to control funds, is that the government is truly terrible at handling money.
This however is also true of most companies and certainly most charities. Waste isn’t a unique hallmark of government.
But this waste is something Bill & Melinda Gates Foundation (the beneficiary of both Gates and Buffett wealth) screens for with intense due diligence. The government does not. In fact, the government seems proud of its pork barrel.
Bill gates wealth is growing. He cannot spend it fast enough. Sometimes perfect is the enemy of good.
Yeah but the idea is to decentralize and disperse management of the money.
So why not giving it back to all the people and let them decide what they want to do with it?
I've always wondered about the logistics of 8+ figure donations. Does Buffett call his personal wealth manager and tell him to transfer X BRKa.N shares to Charity LLC? Does the wealth manager then call Charity LLC to ask them their routing numbers, types a few strokes on a keyboard, and that's it? How many layers of approval do operations of this magnitude go through? Also, what software do they use to (1) store these shares in the first place as Buffett's, (2) transfer them over the Internet?
The answer to question 1 is a combination of the DTCC and his broker, or the relevant company registry for non-traded shares.
https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
I attended a meetup with a presentation from the engineers at https://www.charityvest.org/ you might find their product interesting for your question
I imagine the process is quite involved for tax optimization reasons.
My guess is that it isn't too involved on the tax front. Someone please correct me if the following is bogus...
Donate your lowest cost basis stock and write off at current market value. Donate stock directly to avoid taxes incurred by selling. Lowest cost basis because that removes the largest unrealized capital gains from your personal portfolio. Maybe do so over some number of days to cost average if you are donating oodles like Buffet.
Donate your lowest cost basis stock and write off at current market value. Donate stock directly to avoid taxes incurred by selling. Lowest cost basis because that removes the largest unrealized capital gains from your personal portfolio. Maybe do so over some number of days to cost average if you are donating oodles like Buffet.
There are a lot of nuances missing here. Estate freezes, transfers, nested partnerships, different HoldCos, etc.
Buffett seems proud of his simplicity, so I doubt his structure is too convoluted (bad for his brand to be trying to avoid taxes this way), for people with a small percentage of his wealth all the way up to other billionaires with his wealth have extremely complicated structures that boggle the mind and keep PwC, EY, and similar employed.
The process itself probably doesn't have to be that complicated (or at least it's well understood) but at least the timing is presumably taking tax effects into account.
Even for much much smaller amounts, donations (of various kinds) of appreciated assets can use tax law to considerable advantage.
Even for much much smaller amounts, donations (of various kinds) of appreciated assets can use tax law to considerable advantage.
this, but with a lot of lawyers more :)
it's also kinda cute the idea that shares are stored like computer files. But it's not a stupid question at all. Their existence is regulated by a complicated regulatory complex.
it's also kinda cute the idea that shares are stored like computer files. But it's not a stupid question at all. Their existence is regulated by a complicated regulatory complex.
He’s responsible for the propagation of expensive insurance and sugary drinks around the world - he extracts wealth from the poor and middle class, and by never splitting his stock, makes it impossible for anyone but the elites to share in that extraction.
He is nothing like Musk. If Buffet never existed, Geico and Coca Cola would have been mismanaged into the ground and these markets would have never been sparked to become global industries.
He is nothing like Musk. If Buffet never existed, Geico and Coca Cola would have been mismanaged into the ground and these markets would have never been sparked to become global industries.
He buys companies that are well managed but have hit a stumble and the market overreacts negatively. He is not a turnaround specialist.
They did make class B shares to bring the price down.
And how did he make expensive insurance?
And how did he make expensive insurance?
The class B shares don’t have the same power as the A shares, it’s still classist.
The expensive insurance thing is a hard thing to prove, it’s definitely an opinion rather than a fact. What I saw was the huge success Geico had with their advertising programs, and then every other insurance company deciding to run expensive ad campaigns. The costs of that marketing is paid for directly by the consumer, we’re paying to watch all these dumb characters and cavemen try to sell us car and home insurance, when it used to be a quiet thing you did at the bank.
The expensive insurance thing is a hard thing to prove, it’s definitely an opinion rather than a fact. What I saw was the huge success Geico had with their advertising programs, and then every other insurance company deciding to run expensive ad campaigns. The costs of that marketing is paid for directly by the consumer, we’re paying to watch all these dumb characters and cavemen try to sell us car and home insurance, when it used to be a quiet thing you did at the bank.
fyi youtube video of why these simplistic comparisons of "net worth" based on shares-times-stockprice is meaningless...
- The Ranks of Global Billionaires: Not All Billionaires Are Made Equal: https://www.youtube.com/watch?v=0MeRN7LE1LQ
E.g. Theranos owner Elizabeth Holmes once had a "net worth" of 4.5 billion (as calculated by Forbes Magazine[1] for attention-grabbing headlines) ... but that doesn't really mean she was actually 2x richer than Dropbox's Drew Houston who's worth ~2 billion. That said, Elon Musk is a bonafide billionaire but the comparison to Buffett via a volatile Tesla stock price is meaningless.
[1] https://www.google.com/search?q=forbes+elizabeth+holmes+4.5+...
- The Ranks of Global Billionaires: Not All Billionaires Are Made Equal: https://www.youtube.com/watch?v=0MeRN7LE1LQ
E.g. Theranos owner Elizabeth Holmes once had a "net worth" of 4.5 billion (as calculated by Forbes Magazine[1] for attention-grabbing headlines) ... but that doesn't really mean she was actually 2x richer than Dropbox's Drew Houston who's worth ~2 billion. That said, Elon Musk is a bonafide billionaire but the comparison to Buffett via a volatile Tesla stock price is meaningless.
[1] https://www.google.com/search?q=forbes+elizabeth+holmes+4.5+...
Elon is billionaire because he has potential to sell his shares. That the share price fluctuate a lot doesn't change it.
The point is that if Musk sold his shares the value of those shares would drop like a rock, partly due to supply & demand but mostly because that would signal non-confidence.
OTOH, Buffet regularly sells his shares, mostly indirectly by donating shares to charities who then sell the shares. The amounts are large enough that they do affect the stock price, but not by nearly as much.
That's why it's silly to say that Musk is richer than Buffet. If they both liquidated their positions, Buffett would be sitting on a bigger pile than Musk.
It's also moot because it's so obviously temporary. Musk is going to end up either bankrupt or king of Mars. Buffett is going to fade away. His money will end up doing a lot of good -- it may be directly responsible for eliminating polio, malaria and/or HIV. But that good will have the Bill & Melinda Gates Foundation name on it, so Buffett's role may end up being forgotten.
Perhaps that's for the best, given the number of Bill Gates conspiracy theories are floating around.
OTOH, Buffet regularly sells his shares, mostly indirectly by donating shares to charities who then sell the shares. The amounts are large enough that they do affect the stock price, but not by nearly as much.
That's why it's silly to say that Musk is richer than Buffet. If they both liquidated their positions, Buffett would be sitting on a bigger pile than Musk.
It's also moot because it's so obviously temporary. Musk is going to end up either bankrupt or king of Mars. Buffett is going to fade away. His money will end up doing a lot of good -- it may be directly responsible for eliminating polio, malaria and/or HIV. But that good will have the Bill & Melinda Gates Foundation name on it, so Buffett's role may end up being forgotten.
Perhaps that's for the best, given the number of Bill Gates conspiracy theories are floating around.
I think this is no longer true. If Musk decided to sell his shares to get cash for another venture what investors would see is that even without Musk Tesla is still a well functioning company that delivers.
Elisabeth did not have a product or well functioning company and if she decided to sell (even if she could) large portion of her shares this would likely cause investors to panic
Elisabeth did not have a product or well functioning company and if she decided to sell (even if she could) large portion of her shares this would likely cause investors to panic
The stock market is such a bizarre scheme. The current stock price is a bet on the future stock price. But the future stock price will also be a bet on the farther future stock price. The price is only ever tenuously attached to current reality.
The orthodox theory is that the stock price reflects the expected value of future cash flow discounted to the present.
Ie buybacks, dividends and liquidation are important. Stock prices don't exist in a vacuum.
Ie buybacks, dividends and liquidation are important. Stock prices don't exist in a vacuum.
Don't forget how much money is injected into the system every day by the Fed; it's basically pumping hot air into a balloon. Some modern economists view printing money as a non-issue but I don't think there is any evidence that it's unlimited.
The expected value of future cash flow of SpaceX is likely $0. They've made it quite clear to investors that they will reinvest all profits into colonizing Mars. Yet Google says the valuation of SpaceX is $36 billion.
It's really no different in principle from coming up with a price for any business that you want to buy or sell. The stock market definitely has a speculative/greater fool theory element to it that buying or selling the local pizza parlor doesn't but it's not fundamentally all that different.
It boils down to what do you think the discounted cash flow (after tax) is going to be? Which, with companies, was historically considered to mostly be the net present value of dividends.
It boils down to what do you think the discounted cash flow (after tax) is going to be? Which, with companies, was historically considered to mostly be the net present value of dividends.
It is different in principle, because when you buy a private business, you become the CEO, and you bank the revenue from the business. Neither of those are true when you buy stock in a publicly traded corporation. You may or may not get some dividends, at the discretion of the CEO, who is definitely not you.
It's more likely to be the board (which probably includes the CEO) that sets dividend policy--and they're elected by the shareholders. Now, in practice, they're effectively selected by some large shareholders and that probably doesn't include you. But that's just saying that, if you have a small ownership stake you don't have a lot of say in how a business manages its cash. It doesn't change the fact that a businesses' valuation should in principle be a function of future cash flows whether those come in the form of dividends, spinoffs, or an eventual purchase.
You may think one majority shareholder (including yourself) is better and/or will optimize cash flows closer to what you desire than another. But otherwise it's still the cash flows that ultimately determine the value.
You may think one majority shareholder (including yourself) is better and/or will optimize cash flows closer to what you desire than another. But otherwise it's still the cash flows that ultimately determine the value.
Let's talk about Tesla, which is basically the topic of the article. Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct? So the entire value of TSLA now is speculation on the future price of TSLA. The shareholders are not actually extracting revenue from the company (which is currently operating at a loss), they just hope to extract revenue from future stock buyers. In effect, the actual cash management is largely irrelevant. All that matters is the perception of future stock buyers about the even farther future cash management of the company.
Whereas when you buy a private company, the actual revenue the company makes after the sale does matter crucially. Unless you're just looking to "flip" the company.
If you bought TSLA low and sold now, you could make a tidy profit even though Tesla itself never made a profit during the entire time you owned it.
Whereas when you buy a private company, the actual revenue the company makes after the sale does matter crucially. Unless you're just looking to "flip" the company.
If you bought TSLA low and sold now, you could make a tidy profit even though Tesla itself never made a profit during the entire time you owned it.
>Tesla has never paid a dividend, and is unlikely to pay a dividend any time in the foreseeable future, correct?
There are other outcomes that could give cash to TSLA shareholders, but fine. I'm perfectly comfortable saying that there's no rational basis to TSLA share price and that the price is propped up by speculators gambling/subscribing to the greater fool theory. (Even if some think TSLA is going to be the most valuable company in the world in 10 years or whatever and will start paying dividends, spinning off assets, etc.)
There are other outcomes that could give cash to TSLA shareholders, but fine. I'm perfectly comfortable saying that there's no rational basis to TSLA share price and that the price is propped up by speculators gambling/subscribing to the greater fool theory. (Even if some think TSLA is going to be the most valuable company in the world in 10 years or whatever and will start paying dividends, spinning off assets, etc.)
How is that any different from any other business? You spend money to make more money later, which enables you to spend more money to make even more money. For example if you run a loan business you're making a bet that your customers will repay you on time so you can loan even more to future customers. Buying stock is just like giving loans to corporations.
A loan has a fixed time period, and usually a fixed interest rate too. The monetary value is straightforward. Of course there's a risk you won't get paid back by the debtor, as there's risk in all business. But the monetary value of the payback can't vary wildly based on pure future speculation.
A variable interest rate alters the situation, but if interests rates vary wildly during the fixed loan period, you've got an entire economy out of control. In recent years, interest rates have been relatively steady.
A variable interest rate alters the situation, but if interests rates vary wildly during the fixed loan period, you've got an entire economy out of control. In recent years, interest rates have been relatively steady.
I am not saying all asset classes ought to be as volatile as stocks are. Investors should have choices about the safety of the investments they make.
the current stock price is a bet on future "earnings" and surrounding fiscal environment (taxes, interest rates, alternate investments).
Only thing relating current price to future stock price is the hopes and dreams of speculators.
Only thing relating current price to future stock price is the hopes and dreams of speculators.
What percentage of current investment is speculation for share price growth vs for dividends?
This may be how most money is made in trading, but it's not exclusively how the value of a stock is determined. The stock for a company that never grows isn't worthless. You still have dividends.
You're not wrong but the same could be said of any non-consuming market. Today's House prices are basically a function of future house prices...
This is not true at all, because you live in the house. The primary value of a house is as a place to live. In fact, some people never sell their house, and live there until they die.
That really depends doesn't it. How many people are so settled in their house they don't care about resale value, even for their eventual heirs?would you buy a house you knew would fall in value?
I'm not saying resale value is irrelevant. I said the primary value of a house is as a place to live. Whereas the entire value of stock is the monetary return. There's no material value to stock. Stock is not comparable to material products that you can use and then resell, because there's a lot of value in the use.
Also, the housing market — whether or not a house will appreciate in value — depends a lot on location, but a lot of people lack flexibility in where they can live, because of job, family, etc. You can't pick a house the same way you pick stocks, the constraints are totally different. Not to mention that houses are approximately infinitely less liquid than stocks.
Yes. Why we don't use total equity instead of what one investor thinks is a good price of their share, I don't understand.
Stock is mainly long term storage for pensions.
> Buffett’s net worth dropped earlier this week when he donated $2.9 billion in Berkshire Hathaway (BRKa.N) stock to charity, the report added.
> Musk’s fortune rose by $6.07 billion on Friday, Bloomberg News said, following a 10.8% jump in the electric carmaker’s stock.
I'm surprised in the current economy, people are still buying new cars, let alone luxury cars like a Tesla (at least they're viewed as luxury in Australia).
If I've learnt anything this year, it's the stock market is really resilient against global pandemics.
And that governments are willing to do so much to keep the economy going like it's their poster child of success.
If I've learnt anything this year, it's the stock market is really resilient against global pandemics.
And that governments are willing to do so much to keep the economy going like it's their poster child of success.
That article doesn't say how much Musk or Buffett are actually worth. Musk is now at $70.5B, while Buffett is at $69.2B according to the Bloomberg Billionaires Index which is at https://www.bloomberg.com/billionaires/
If Tesla‘s share price volatility is any indication, these statements (net worth zooms past..) will be at peaks of rollercoaster ride.
On the other hand, as the manufacturing infrastructure continues to grow aggressively, we can expect to see more stability. Short sellers would do well to keep that in mind.
I prefer short sellers to lose money. They're betting against EVs and EV culture and I believe they have promoted hit pieces and a lot of negative press on the sole EV company for years. This may actively put our climate at risk, though I'm not set on the point...
Yes they deserve to lose money! Especially the big noisy ones who are actively trying to bring down parts of the green economy.
this seems plausible but I am not sure it has proven to be true recently: the volatility of TSLA in the last year has been higher than the previous one, wasn't it?
I find these "Billionaire X now richer than other billionaire Y" pieces a complete waste of time. I doubt the billionaires in question even care. So what's even the point?
What I want to see is "Billionaire X now paying more tax than other billionaire Y" or "Billionaire X now raising minimum salary in his company by 50%".
I don't know how generous they are but apparently most employees get stick grants and options.
> Unlike most automotive companies, Tesla Inc (NASDAQ: TSLA) offers stock options and grants to all of its employees.
> Regardless of rank or position, all Tesla employees are offered this benefit.
https://m.benzinga.com/article/16542751
> Unlike most automotive companies, Tesla Inc (NASDAQ: TSLA) offers stock options and grants to all of its employees.
> Regardless of rank or position, all Tesla employees are offered this benefit.
https://m.benzinga.com/article/16542751
I've worked at places where everyone got stock, but it was orders of magnitude different for engineers and non-engineers. I bought a house, my friend in support paid down their credit card debt.
The latter is a bit meaningless by itself. Eg Google's employs janitors and baristas only indirectly via other companies, so they don't bring down the minimum or average salary.
In any case, customer surplus is the thing to watch out for.
Amazon has a good track record with that. Indirect evidence: a while ago the moment they announced that they were getting into the health insurance business, healthcare companies' stocks dropped.
See eg https://www.bloomberg.com/news/articles/2018-01-30/health-st...
In any case, customer surplus is the thing to watch out for.
Amazon has a good track record with that. Indirect evidence: a while ago the moment they announced that they were getting into the health insurance business, healthcare companies' stocks dropped.
See eg https://www.bloomberg.com/news/articles/2018-01-30/health-st...
I would love Musk an especially SpaceX to pay as least tax as possible. I sincerely hope SpaceX pays none. I would love other entrepreneurs to be as motivated as possible to do things like Musk does, and have them have as much funds for it as possible.
SpaceX doesn't pay any tax and it never will. To pay tax you have to make a profit. They're definitely not doing that now: both Starlink and Starship are each estimated to cost well over a billion dollars to develop, yet their revenue per launch is at most $20 million if you're generous. (edit: SpaceX has advised that Starlink will cost 2-3 billion to develop and Starship will cost 10 billion)
Once Starlink gets going many expect it to rake in the cash but Musk has said quite explicitly that they're going to spend it on going to Mars. It wouldn't be hard to structure that spending either as expenses or charity. So again, no profit to be taxed on.
This is of course why he's keeping SpaceX private. Investors have to understand that SpaceX's future profits are going to Mars, not back to the investors.
edit: this isn't completely true. They do plan on spinning off Starlink, so if they do it should be profitable and pay taxes. Musk may shuffle his Starlink profits into a Mars expdition, but Starlink itself will pay taxes and other owners will end up paying capital gains taxes etc.
Once Starlink gets going many expect it to rake in the cash but Musk has said quite explicitly that they're going to spend it on going to Mars. It wouldn't be hard to structure that spending either as expenses or charity. So again, no profit to be taxed on.
This is of course why he's keeping SpaceX private. Investors have to understand that SpaceX's future profits are going to Mars, not back to the investors.
edit: this isn't completely true. They do plan on spinning off Starlink, so if they do it should be profitable and pay taxes. Musk may shuffle his Starlink profits into a Mars expdition, but Starlink itself will pay taxes and other owners will end up paying capital gains taxes etc.
Apart from the unsolvable problem of where to draw the line for tax exemptions like that: If a for-profit company can’t succeed while contributing to society like everyone else, it’s just not worthwhile. Objectively innovative companies like SpaceX have few issues attracting funding, anyway.
[deleted]
Where do you draw the line between SpaceX and companies like it, and the rest?
Humans enjoy idolising the rich. I do wonder if there's an evolutionary reason for this. Perhaps we're primed to listen to the person in the tribe who is best at gathering resources.
Idolize is a bit over the top, but I admire people who get big things done. Even if it is with a lot of help from a big hard-working team. The net worth part of it is indeed interesting too, for about two seconds, but getting shit done more so.
they don't. It's other people who look on with envy that cares - after all, these articles gets clicks.
billionaires have huge egos
You clicked
I think that Buffett and other value investors will keep slipping in the net worth rankings. Value investing is out. Trend investing is in.
It’s all up to one’s preferences, isn’t it? For people with moderate risk appetite and moderate expectations on ROI, value investing can make lots of sense and good returns. Especially over decades. (E.g. a 30 year old might not retire on over three decades.) I’m content if a get an average yearly return of 4-8%. Building wealth doesn’t have to be a sprint.
Obviously I’m nowhere near neither Buffet’s nor Musk’s league :)
Obviously I’m nowhere near neither Buffet’s nor Musk’s league :)
I think valuations with high PE ratios eventually become self-fulfilling prophecies for large market-caps. These companies are able to raise capital cheaply, deploy it efficiently and keep increasing their market share. With the Fed willing to pull all stops, even weak macro environment doesn't affect PE anymore.
That theory works for Tesla and other legitimately innovative companies... but how many companies fail for every TSLA?
> Value investing is out. Trend investing is in.
Aren't you missing some possibilities?
Aren't you missing some possibilities?
It doesn't mean that trend investors make greater returns over the long term than informed investors. The NYT has a piece right now about the trading platform Robinhood and how the platform has attracted lay investors who know squat about the markets and lose more money than investors with other, more established brokers.
There's a guy who took equity on his house and opened multiple lines of credit to invest with margin, made over a million, and then lost it all.
Meanwhile passive investors making a cool annualized 5% above inflation will retire rich.
There's a guy who took equity on his house and opened multiple lines of credit to invest with margin, made over a million, and then lost it all.
Meanwhile passive investors making a cool annualized 5% above inflation will retire rich.
Leverage and passive investing are perfectly compatible.
Think of Musk and Tesla what you will, and I'm not the biggest fan of his, but good for him that he gets rewarded for his entrepreneurship.
Unless Buffett gets his name on a hundred buildings through "donations", nobody will remember him in 30 years.
Buffett is going to be the prototype of a shrewd investor for generations. There's enough legend surrounding him that he won't be forgotten in such a short timespan.
He used to be the savior of last resort, but lately fed has eliminated the need for him to step in (or raised the floor above where buffet would make a move).
What does this mean?
Buffett has always had pretty conservative holdings with Berkshire and a top tier credit rating. So in 2008 when a lot of businesses needed liquidity he came in with it on very generous terms to him making billions. For instance he loaned Goldman 5 billion dollars to keep them afloat and in return got preferred shares that made him much more money. This was in return for the risk he took.
Now the government and Fed are offering almost unlimited liquidity to businesses so he can't do that. The problem with this is that the government is NOT getting Buffet like terms.
Now the government and Fed are offering almost unlimited liquidity to businesses so he can't do that. The problem with this is that the government is NOT getting Buffet like terms.
Buffett would often invest in distressed blue chip companies. The companies often gave him a very good deal in return for the halo of Buffett approval.
For the comment about the Fed, see eg https://en.wikipedia.org/wiki/Greenspan_put
For the comment about the Fed, see eg https://en.wikipedia.org/wiki/Greenspan_put
> In high school, he invested in a business owned by his father and bought a 40-acre farm worked by a tenant farmer.
> Buffett’s net worth dropped earlier this week when he donated $2.9 billion in Berkshire Hathaway (BRKa.N) stock to charity
Such a generous man and an entrepreneur. We need more like him.