A Discussion About Turning Capital Gains Into Cash Flow

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As long as you have a way to systematically withdrawal money in order to pay the bills then this is cash flow. Warren Buffett likes the companies he invests in to reinvest earnings instead of paying out dividends since they can generate a better return on equity (20% or greater) than other investments. Although it would follow that one should leave capital gains in the holding as well, it seems that you could cash out a portion on a regular basis to generate cash flow while the company still reinvests earnings.

Again, you could still classify this as captial gain move if you wanted to leave the gains in place to continue compounding (again, a Buffett-style investment is not like a mutual fund investment. Over the long-term, the business fundamentals, earnings, management and consumer monopoly will win out over the casino-like Mr. Market and provide a consistent rate of return.)

I still say the definition of cash flow is the ability to generate cash flow on a short term basis in order to pay expenses. Not to discredit capital gains, you need both, but there is a difference ... unless of course you can make the argument that you can let a gain grow and compound for up to ... say, 5 years and then cash out the gain for cash flow. This of course means you need living expenses for 5 years until you can receive the cash flow.

As far as the role Berkshire Hathaway plays in the Buffettology system ... to be honest, I am in the middle of Buffettology Buffetology **ISBN: 9780684871714**
.. it is a great book and a must read for any business person or investor ... but I am not 100% sure what role Berkshire plays. From what I know, it is a holding company for the businesses Warren owns. So I would assume he has tax advantages by using Berkshire as the holding company, etc.

As to why Warren Buffet is not in Real Estate and yet made it to top 3 position of world richest man I would have to counter that neither is Bill Gates ... both are in businesses ... but I believe the Sam Walton clan has significant real estate holdings!

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