Warren Buffett: Why stocks beat gold and bonds

Reblogged from Fortune Finance: Hedge Funds, Markets, Mergers & Acquisitions, Private Equity, Venture Capital, Wall Street, Washington:

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In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.

By Warren Buffett

FORTUNE — Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — …

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I am a huge fan of Warren Buffett's. It isn't so much that he's a brilliant investor who has delivered a tremendous amount of value to the shareholders of Berkshire Hathaway, but rather than he's willing and able to put some of the most complex (and controversial) topics of discussion into a context that is digestible for nearly everyone. In his upcoming shareholder letter, Buffett challenges the conventional wisdom that has long stated that cash is among the safer aspects of one's investment portfolio and that stocks are among the riskiest. Quite the contrary says Buffett, you're guaranteed to lose money on your cash position (although it affords you flexibility and liquidity) and over the long run a diversified stock portfolio is much more likely to produce big returns.

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