Warren Buffett’s position on gold is well known, if a little difficult to fathom. This is from Buffett’s appearance on CNBC’s Squawk Box on March 9, 2009, but could have been taken from any of his commentary over the last fifty years:
BECKY: OK. I want to get to a question that came from an investment club of seventh and eighth graders who invest $1 million in fake money every year. This is the Grizzell Middle School Investment Club in Dublin, Ohio, and the question is, where do you think gold will be in five years and should that be a part of value investing?
BUFFETT: I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot–and it’s a lot–it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that. The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.
Then there’s this comment from Buffett on the relative performance of Berkshire Hathway book value and an ounce of gold over fifteen years in the 1979 letter to shareholders:
One friendly but sharp-eyed commentator on Berkshire has pointed out that our book value at the end of 1964 would have bought about one-half ounce of gold and, fifteen years later, after we have plowed back all earnings along with much blood, sweat and tears, the book value produced will buy about the same half ounce. A similar comparison could be drawn with Middle Eastern oil. The rub has been that government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.
Fifteen years of blood, sweat and tears from the greatest investor in the world and he just breaks even with gold, which “just sits there and eats insurance and storage and a few things like that.” And still he recommends avoiding gold.
For tis the sport to have the enginer
Hoist with his owne petar.
[…] to get to the top. Standing still on the up escalator was an easier ride. This was the point of my Buffett on gold post last week. The change in the Dow:gold ratio for the period 1964 to 1979 makes it clear why […]
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I think Buffett likes to own things that produce, so that he doesn’t have to worry about the market at all. That way you’ve got an out should the market not do what you expect.
If I can buy something for 5 x sustainable earnings and the price only goes down, I don’t care, because its throwing off cash. If the price goes up to what I think its worth, I can sell, so its a win regardless of what the market says. With gold you can only win If Mr Market lets you win.
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In 1930, gold was at about $20 while the DJIA was roughly 250 over the course of the year. Gold is now at $1100 and the DJIA at about 10,000, so both assets have done ~5% annually since then. There seems to be a reasonable argument for gold as an asset class, but I have to agree with tedk81 and Buffett–a sound value strategy is likely to outperform gold over most reasonable time periods, especially those that start with gold at a multi-year high.
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greenbackd i am surprise by your comment… very surprise.
“All I’m saying is that there are periods of time when gold beats the return of the best investor in the world”
i am sure you can say that for anything, does that make it a good idea. hmmm there is probably a period in time were baseball cards beats buffett, or maybe a beanie babie… you get the idea.
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greenbackd i am surprise by your comment
“All I’m saying is that there are periods of time when gold beats the return of the best investor in the world”
i am sure you can say that for anything, does that make it a good idea. hmmm there is probably a period in time were baseball cards beats buffett, or maybe a beanie babie… you get the idea.
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Dude, if BRK.A shares had been pumped with as many advertising dollars as GOLD over the past 10 years, I have no doubts that BRK.A shares would be in the stratosphere.
If I listen to talk radio, watch CNBC, Fox Business, etc, etc, I hear constant ads re-assuring me that GOLD is my hedge against inflation/deflation/rabies and gout. GOLD is safe. GET YOUR FREE GOLD BUYING GUIDE. CALL NOW. YOU COULD LOSE ALL YOUR RETIREMENT MONEY IF YOU DONT BUY GOLD.
Imagine 10 years of hearing about how safe BRK.A shares are. About how even if the economy collapses and you are bartering with coffee beans, sugar, and toilet paper, how BRK.A shares will still be valuable (well, they will be about as valuable as gold nuggets at that point as well, which I why I am sinking all my free money into surplus wheat and coffee beans)
Gold is a decade long uber-pump. I would rather have the same amount of money made honestly through production (like Buffet), than have something pumped up through a fear, uncertainty, and doubt campaign.
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I suspect that the printing of money does more for gold than television ads, but I’ve got no data to back that up.
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Ha! And I suspect jafix doesnt understand the relation between the price of gold and the value of a fiat dollar.
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Guys, I thought this was a value/contrarian website. Long gold is getting to be even more crowded a trade than condos in Las Vegas pre-2008……
I suggest you move on to a more uselful discussion.
Thanks.
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Astute observation. I would counter that even if event driven, below NCAV investing performed on par with gold (not what Buffett currently does, but the idea of investing with a margin of safety in a certain sense), it tells you nothing about the risk inherent in both. As a reader of this site, it is probably obvious where I stand.
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Buffett’s logic makes perfect sense, perhaps that is why he is, as you call him, the greatest investor in the world. You, on the other hand, committ the logical flaw the Romans called “post hoc ergo propter hoc”, meaning after that therefore because of that. Worthless tulip bulbs, internet stocks, and so on, have generated incredible returns in periods of time that Buffett was never able to match. Is that a good reason to buy them? No. You fail to provide any other reasoning. The actual number of real value investors is much smaller than the number claiming to be value investors for “many are called, but few are chosen”. Go ahead, buy a lump of metal and stick it in storage and think that you are investing, maybe you will get lucky, others certainly have!
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“All I’m saying is that there are periods of time when gold beats the return of the best investor in the world, the implication being that perhaps mere investment mortals shouldn’t ignore gold for the reasons Buffett gives.”
-well said
no reason to not allocate a small % in a portfolio imo or speculating during high inflation.
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How is a shorter time horizon such as the last years more significant input then the last 50?
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You do realize that at the end of 1979 a share of berkshire cost around $320 (not sure exactly, just eyeballing the chart), and an an ounce of gold cost around $510, right?
So had you bought $10,000 worth of brk at that time you would have $3.2 million (enough to buy an island and a ferarri.) Had you bought $10,000 worth of gold at that time, you would have $21,000 (enough to buy a used Camry.)
So, yeah, I wouldn’t say he exactly was hoisted by his own petard on that one.
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How about over the last say 10 years? All I’m saying is that there are periods of time when gold beats the return of the best investor in the world, the implication being that perhaps mere investment mortals shouldn’t ignore gold for the reasons Buffett gives.
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In 1999, the last ten years of the NASDAQ were pretty good too. And last year in july, one would have done well having owned oil for ten years as well (let alone bank stocks). In 2005, you would have been very stupid not to have owned a house for ten years.
The question is, what will be the performance of gold in the NEXT ten years, now that everybody and their uncle owns gold and it reaches new highs daily? “Everybody” knows that the dollar will crash, hyperinflation will run rampant and people will light their stoves with $100 dollar bills. You know it, and the guy who sells his gold to you knows it. And he’s not selling it to you unless it’s for a price that implies such a scenario. To make money with gold, things need to be even WORSE than the current accepted wisdom. Buffett reasoned exactly the same way in his 1999 op-ed: The internet will be revolutionary, but to make money with dot-com stocks, it has to be even more revolutionary than everybody thinks.
And should all this not come to pass, I wish you good luck with your $1100 worth of gold in a deflationary world.
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“All I’m saying is that there are periods of time when gold beats the return of the best investor in the world”
So what? If you cherrypick 10 years here or 15 there, sure you can find that. But in the long run good or great investors have absolutely crushed gold and will continue to do so.
Buffett: up 3200% since 1979. Gold up 100% even though it’s done OK in the last 10 years.
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@ tedk81 “You do realize that at the end of 1979 a share of berkshire cost around $320 (not sure exactly, just eyeballing the chart), and an an ounce of gold cost around $510, right?
So had you bought $10,000 worth of brk at that time you would have $3.2 million ”
-“So had you bought”….give me a break. Using outlier stocks as examples of what you should have bought is newbie stuff. It’s like (funny condescending voice) well, had you only bought Microsoft at IPO or Coca-Cola at IPO. lol If you think your going to find the next Berkshire or Keynes endowment fund around its inception you’ve got a lot to learn about this game.
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i’m guessing you didnt read the post or the example provided
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again, the point was buffett vs gold and sometimes gold was even as good as buffett for as long as 15 years. did you even read the post?
my point was, so what?
had you bought the dow, which closed 1979 at 785, right now you’d have $130,000.
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