John, I was hoping for more feedback for you, and for me too, because I would like to learn from others.
I’d like to add what I know about bond funds: Their payout is the current rate, but the value fluctuates. If you sell before maturity, as I think the bonds are sold, you can lose money. In any case, the bond value goes down in a period of rising interest rates. For this reason, bond funds are not as favorable now.
I am a big believer in index funds. I’ve rarely been fortunate to outdo the index. Certainly not in my own stock picks. When I first started investing, about 18 years ago, I read everything I could get my hands on. After a few years of picking the best recent fund, and losing money in the following years, I realized that you cannot pick a mutual fund based on last year’s returns.
Then I converted from picking mutual funds to index funds and picking stocks. Now I realize that stock picking is just for fun. For every Fannie Mae and Caterpillar that did well, along comes one Delphi that goes bankrupt… From what I know today, index funds give the highest returns in the market. Some years that can mean a -5% return, so a loss. But that is a smaller loss than I would have in a mutual fund.
Go to the finance.yahoo site, and you can put in the ticker symbol for your fund or stock, and then they let you compare it to the S&P, Nasdaq, and Dow. Unfortunately they don’t have a Russell2000 comparison.
One stock-picking suggestion is Warren Buffet’s Berkshire Hathaway. His diversified holdings are akin to owning a mutual fund led by the world’s richest man, and one of its most astute investors. He believes the dollar will lose value, and invests accordingly. He just made a $4bil purchase of an Israeli tool company to hedge against the falling dollar. Last week he bought a $376 mil stake in Britain’s top retailer, and invested $1.13 bil in Conoco Philips, and $330 mil in GE and UPS. His goals now is reducing his $43bil cash holdings to $10 bil by making non-US acquisitions.
Buffett does not want to own dollars anymore. He prefers to invest in foreign companies over playing the currency market, bec. he lost $955 mil in 2005 betting against the dollar, a year in which the dollar index rose 13%.
BRK-B, $3059/share.
The A shares are $91,500.
His holding company has done better than the S&P500. In the last 10 years, BRK.B is up 150%, while the S&P, Nasdaq, and Dow are up only 100%. If you look at the last 2 years, he underperformed the S&P500.
However, his main business is insurance, and if there are any catastrophic losses, such as another big hurricane, his fund can have a bad year. You’d have to be prepared for that, and not pull out just at the low. He’s prepared to lose $6 bil in a year.
I bought one B share in early 2000, and it was around $2000. I’m considering getting more. What would be a reason not to?
One interesting thing about Buffett is his intense honesty at his shareholder meetings, and that despite his net worth of $43billion which is all tied up in his shares at Berkshire, his salary is only $100K/year. He lives in Omaha, NE.
