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good day fellow investors Warren Buffett recently said this let me give me a figure that'll blow your mind I think I bought my first stock when I was 11 years old it was the first quarter of 1942 shortly after Pearl Harbor I spent a hundred and fourteen dollars and seventy five cents create three shares hundred fourteen seventy five if I put that 114 into the S&P 500 at that time and reinvested the dividends think of a figure as to what it might be would be worth today oh man well it's okay I just want your audience to think for a second okay the answer is the answer is about $400,000 ah so if I is a little kid to take it 114 bucks I'd say that whatever I got four hundred thousand dollars today one person's lifetime that's America that isn't me you know it's it is the huge tailwind the American economy gives to any equity investor so he's saying that $114 invested in the sp500 which reinvested dividends would now be four hundred thousand and that is what he is saying to sell the stock market because he's a capital capital allocator he likes also stock prices to go up to give him a better return and that's why his selling stock stock stock market stock market and he's especially selling index funds because he's telling you you cannot do what I did is better for everybody else to just invest passively in the stock market even if he never invested in index funds and let me show you how his view is a little bit biased I have looked at 140 years of returns of the sp500 ten-year and 20 years to show how stock market index investing is also risky and let let's go into that but before that first is who has a 75 year investment horizon Buffett yes because he has no life but I bet that 99% of us we have a ten five twenty year investment horizon max as we want to live our life and we want to take advantage of our money and we want to spend it we want to die penniless don't want to die with 90 billion so that's the difference between Buffett and the rest of the normal world we have to think about now let's see about the sp500 returns and the distribution of the returns over time so I have taken the SP 500 yearly returns added the dividends and adjusted for inflation everything is adjusted for inflation to see what are the real returns over time here you have the distribution of ten-year returns over the last 139 years of scp-500 available data and in 18 out of the 149 cases I analyzed real ten-year Returns which reinvested dividends have been negative with the worst case scenarios being a 30 32 percent and 45 percent real loss if you invested in stocks and reinvested the dividends in 1964 1910 and 1999 so my data shows that the if you invest in stocks in index funds there is a 14% chance for your returns to be negative over the next 10 years negative and the Cape ratio is now extremely high and we have seen that in the past I'll make a special video I have to dig into the data to see what are the average returns in relation to the Cape ratio but there is a big probability that after 10 years with the high ratios the net real returns are 40% down that's something Warren Buffett never mentions he just says buy index bonds by index funds by index funds the best returns are 416 percent three hundred eighty eight percent and 361 percent returns from 1919 nineteen forty eight and nineteen eighteen respectively when the Cape was at 663 1042 and 609 respectively so when the Cape was low high 10-year returns when the Cape was high low ten-year and even ten year negative returns so Buffett don't just tell people to invest in the stock market why don't you tell them to do what you did learn invest much time and then invest the court for proper risk/reward situations at this moment in time yes it has worked well over the past and that's why Buffett feels good but I don't think it's smart to say to people to just blindly invest in the index funds dollar cost averaging okay but who can dollar cost average over 75 years let's look at 20-year returns a little bit better than ten-year returns the worst returns are 14 15 and 21% the over 20 years I'm talking not yearly returns coming from 1961 1901 1902 when the Cape ratios were eighteen point nine two seven twenty 94 and twenty two point three the best returns and this is good to hear are 1014 percent nine hundred twenty four percent and nine hundred eighteen percent from 1947 close to when Buffett invested his $114 1978 and 1979 when the Cape ratio was at 11749 twenty four and nine twenty six so when the Cape is low long-term returns are high and vice versa so why doesn't Buffett see that I don't know perhaps he is high on his good returns over the last forty five years thanks to index funds investing thanks to others buying stocks high when he bought them low further back to Bath that his nominal returns from the period he picked would be around eleven percent per year since 1942 which is remarkable as the average ten-year real returns and 20-year real returns were 7.6 percent and 7.2 percent respectively if I invest his $114 over seventy six years that the seven point two real interest rate I get to twenty two thousand four hundred seventy six which is twenty times less than the story he is selling us it's not bad but let's keep inflation in mind when looking at those huge numbers so my point is okay there are a lot of people with a lot of money with retirements with everything in Buffett is saying buy index funds by index fund by index funds and that's a wrong message for most people because some people will need that money in five ten fifteen years and there is a 30% statistical change chance I have to adjust it for the Cape ratio will make will which will make it much higher that the returns will be negative negative and that's why I must disagree with Buffett on this call dollar cost averaging forty year horizons in forty years I will be 75 I want to live my life so I don't have such a long horizon to wait for I'm sorry thank you for watching looking forward to your comments on this extremely important topic how do you see it my way or Buffett way let me know see you in the next video
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