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Subject:  Re: Why the smart money is underperforming? Date:  10/14/2012  12:21 PM
Author:  knighttof3 Number:  405979 of 536540

Why should people take a chance on stocks, hoping a bigger fool will drive up the value of their stocks using earned money - when the Fed has already promised to keep being the bigger fool in the bond market using conjured money.

Which is exactly why Buffett's philosophy of viewing stocks as part-ownership of a business makes so much sense. You don't have to rely on a bigger fool to make your stocks worth something. The earnings reinvested in the underlying business and the dividends and buybacks paid out to shareholders ensure that stocks have intrinsic value above and beyond any market manipulation.
To get capital appreciation, you do need to sell the stocks at a higher price than you bought, so someone willing to pay more than you did has to come along. But he is not a bigger fool if he is also getting adequate value in return, in the same way that you are not a fool to buy food from the grocery store even though the store is making a profit.
Bonds at current prices have such a limited upside (if any) and all the downside in the world, that you do need someone like the Fed to prop the prices up. I wouldn't call them bigger fools since any non-Fed buyer is clearly not hoping for a quick buck via bond price appreciation, but they are fools (with a small f) nonetheless.
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