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Yes to Warren Buffett’s Predictions

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Yes to Warren Buffett’s Predictions

Buffett says that America’s economy is in the best state it has ever been, but how close to reality is that?

Warren Buffett recently stated that drinking Coca-Cola is healthier than eating broccoli.

If it was said by anyone else, the most attention it would likely get is a dismissive chuckle.

If you’re the most successful investor in the world, however, it seems that anything you say will be taken with some serious consideration, no matter how poorly your statements seem to line up with reality.

That isn’t to say that he doesn’t know what he’s talking about—if you earn the nickname “Sage of Omaha,” chances are you have a good idea of how economic trends will likely play out in the future.

In the ruthlessly unpredictable world of investment, it’s understandable why people would flock to a figure whose fortune seems to indicate they know the secret to success.

No matter how often someone’s predictions come true, however, they are doomed to be eventually wrong.

When hundreds of thousands of people cling to the ideas of that one person, the potential consequences are magnified.

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America is Doing Great: Comparing Future Trends with the Past

Buffett has frequently expressed his opinion that America’s economy is in the best state it has ever been, and that it will only continue to improve over the coming years.

Sounds like wonderful news for the hopeful investor, but how close to reality is it?

He has enjoyed some of the greatest economic booms over the last fifty years.

Investing and eventually taking over a textile manufacturer (Berkshire Hathaway) in the early 1960s, the company was able to expand rapidly due to both a strong dollar and national debt levels being relatively low.

Times have changed since then.

As of December 2015, the U.S. national debt was in excess of 18 trillion dollars.

Endless pages of government regulations have rendered old strategies ineffective.

The rate of inflation has been steadily climbing since the early 2000s.

Clearly the U.S. is far from the best it has ever been, let alone on the track to improve over the coming years.

Missing the Mark on Investment Predictions

Buffett does not invest in gold.

His reasoning is that he only wants to put his money into products and services that are useful on a practical level.

Silver has a much broader range of industrial and medical applications than gold does, and that’s where Buffett has invested instead.

Earnestly advocating against investing in gold, he has also suggested that people instead put their money into index funds in the US stock market, such as the Dow Jones and S&P 500.

Despite his predictions, however, gold has done exceptionally well compared to Buffett’s alternatives over the past 50 years:

  • Gold – Up 36.6x
  • Silver – Up 19.6x
  • Dow Jones – Up 18.2x
  • S&P 500 – Up 24.3x

The Time Factor: Increasing Rates of Change

While Buffett has been around long enough to know that economic power shifts over time just as easily as political power, what’s different now is that the rate of change seems to be increasing at an alarming rate.

The dot-com bubble of the late 1990s saw the birth of thousands of new internet-based companies, boosting the equity value of the country as a whole. Hardly more than 15 years later, only a handful of these companies still have an iron grip on the online economy.

This only adds to the point that it is very unlikely the next 50 years are going to look anything like the last 50.

Relying on Objectivity Rather Than Optimism

Buffett’s strategies have obviously served him well over the last 50 years, but many of his current ideas have an inaccurately optimistic outlook on America’s economic future.

Looking at things optimistically is helpful on a day-to-day basis, but not when it obscures objective truths.

Especially when it comes to how you are investing your money.

While some opinions might be more encouraging to hear than others, rationality should always be your main adviser when making financial decisions.

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