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The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017


By Robert M. Doroghazi, M.D., F.A.C.C.

Buffett Selling Vacation Home

Issue #461, March 13, 2017

    In 1971, 41-year old Warren Buffett bought a vacation home in Laguna Beach, CA, for $150K. It is now on the market with an asking price of $11M. I don’t mention this because this newsletter has turned into a knock-off of “lifestyles of the rich and famous” or People Magazine, but because it allows me to make many points worthy of discussion.
    1) Since the beginning of my financial writing I have strongly recommended physicians purchase recreational property. As society gets wealthier (see below), there will be an ever-increasing premium on places to relax, that are yours, that you don’t have to share with anyone else. This presumes, of course, that you are in a solid financial position, have your home paid off, or have accumulated significant equity, and that you have a solid down-payment. Note that banks require a higher down-payment on a second-home/recreational property. After all, it is a discretionary purchase.
    2) Always buy quality, you want that unobstructed view of the beach, the waves, the shore, or on the golf course. It’s easy to presume that Buffett couldn’t generate that kind of gain, more than 10% per year for 46 years, or ask that price, on a second-tier property.
    3) No one likes to pay taxes, but Buffett is well known for really, really not liking to pay taxes: ex: he continues to hold onto some of his legacy positions, such as Coca Cola (KO), because almost the entire value of the position is gains, and thus taxable. There are rules which allow one to decrease the taxes owed on the sale of a primary residence that also apply to a second home. However, this would shield only $500K of profit from taxes: the rest would be taxed at the capital gain rate. Maybe he has an off-setting loss, or will donate the property before the sale. Whatever the situation, there is no doubt Buffett has considered all options. You say “the guys worth $75B plus, does he care about paying maybe $1-2M in taxes”?
    RMD comment: that’s why he’s worth $75B, because he does care.
    4) Buffett put up about $30K and borrowed the rest. “It’s the only mortgage I’ve had in 50 years”.
    RMD comment: Buffett doesn’t like to owe people money. That’s about the best advice you will ever get. Debt is a financial 4-letter word. Debt is slavery: on the first of every month, you will send your master a check, or suffer the consequences.
    5) “With the $110 or $120K I borrowed, I was buying Berkshire (Hathaway) stock”, which traded at about $40 at the time.
    RMD comment: The mortgage money didn’t go into his pocket, it went to pay for the home. But it was $120K that he didn’t have to come up with. From my reading, Buffett’s net worth at the time was at least $20-50M, so this should not have made any appreciable difference in the cash available for investment (If it really made that much difference, he wouldn’t have bought the home in the first place). Be assured: I’m not criticizing Buffett: he is the greatest investor of our lifetime. I just don’t understand the comment.
    6) Here is the main point I want to make. I have often been asked: “Why should I pay off a loan at 4%, when I can make 8-10% investing the money?”
    RMD comment:
    A) 10% was the average return from stocks in the US in the 20th century (7% after inflation was factored in. About 62% of that 7% real return was from dividends. Dividends are important). You must realize: this may be the average return—but it is not guaranteed. Since the peak in early 2000, the S&P 500 has returned about 5% per year. If you purchased stocks at the peak in 2007, you were down 38% in 2008. Don’t be seduced into believing that just because Buffett can do something, you can too.
    B) When you own something free and clear, it’s yours. Nobody can take it away from you. I own my home, my vehicles, my Lake Ozark condo, a 73-acre piece of land with an apple and pear orchard and 24-acre lake, my Bingham painting, my artwork, everything I have: it’s mine. I continue to recommend one of your basic financial goals be to pay off your mortgage as early as possible, preferably by age 45. If my dad, a foreman at the steel mill, could pay off the mortgage at age 42, surely a physician making $250K or more per year, can pay off the mortgage by age 45
    C) The less debt, the more stable your financial condition. Someone has $100K with no debt, another person $1M with $900K debt. Both have a net worth of $100K. Who is better off? If things go well, the later will make out like a bandit. If things go poorly, the guy with debt is, to quote Jesse “The Body” Ventura, “in for a world of hurt”. 
    D) I bought my Lake Ozark condo in 1996. When we were looking around, I thought “how can people afford all of these things. The boats often cost as much as a home or condo”. I quickly realized—most can’t. How much do they own, and how much does the bank own? One of the greatest comments from Stanley and Danko’s spectacular book The Millionaire Next Door is “big hat, no cattle”. Let the other guy have the big hat, I prefer the cattle.
    The commodities are getting spanked. XLE, an ETF of the largest energy stocks, is off 10% from its early December high. Copper is off 15% in just the last 2 weeks, and the precious metals are weak. But Consumer Confidence is at its highest since July, 2001, and the economy added 235K non-farm jobs last month. 
    RMD comment: Interest rates were supposed to break higher, but remain locked in a tight post-election range. The US Dollar was supposed to break higher—but hasn’t yet. Is the weakness in commodities due to a weak economy, or are they anticipating a higher Dollar and higher interest rates? Jeff Gundlach and Felix Zulauf feel that when interest rates finally do head higher, it will cause the market to weaken—but it hasn’t happened yet. Stay tuned.
    Many points of the above discussion applies to collectables. People can spend only so much on the basics such as food, clothing, shelter, and transportation (Admittedly, some can spend a lot more than others). I believe there will be an increasing premium on things with a limited supply, things made yesterday: an antebellum home (not to insult anyone, but antebellum means before a particular war, esp. our Civil War. Antediluvian is before the Biblical Flood of Noah), a book autographed by Mark Twain or Ernest Hemingway, or a 1909S VDB Lincoln penny.
    I encourage you to collect, and encourage your children to collect: it is a nice introduction to capitalism. It is also a nice way to harness the excess brain power and intellectual curiosity of the really smart kids. Two pieces of advice: 1) a collection must be focused. 2) Always buy the best. One $10,000 collectable is at least twice as valuable as 10 items worth $1,000.
    In 2010, the National Commission on Fiscal and Financial Responsibility was created by Pres. Obama to identify “policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability in the long run”. Its basic mission was to make recommendations to insure the long-term viability of Social Security and Medicare. It is commonly called the Simpson-Bowles Commission, after the co-chairs, former Sen. Alan Simpson (R, WY), and former White House Chief of Staff Erskine Bowles (Dem).
    From the beginning, Simpson has been extremely frustrated with AARP’s opposition to any changes whatsoever. He was interviewed on CNBC last week, and said dealing with them was like “getting your eyes scratched out with a salad fork”.
    EMD comment: Up until the Great Depression, the budget of the federal government was about 5% of GDP (which was about the tax rate in the Roman Empire). Currently the Fed. Budget is about 21% of GDP (18% from revenues, 3% borrowed). The vast majority of the increase is due to Social Security, Medicare/Medicaid, and Defense spending. Everyone agrees that the entitlements must be brought under control, but no one has the nerve to do it. In the late 90s, Senators Daniel Patrick Moynihan (D-NY) and Bob Kerrey (D-NB, Medal of Honor winner in Vietnam, not to be confused with John Kerry, D-MA), had decided not to seek re-election and were willing to take the political heat to spearhead entitlement reform. No takers.
    The market and I are happy with many current proposals, esp. streamlining regulations, but in the long-term (like 10 years+), we must have entitlement reform.
    Next week’s newsletter will be “A Political Donation as an Investment”. I believe it will be one of my best ever.     

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