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We Finally Figured Out Why Warren Buffett Hates Gold

Warren Buffett is an absolute legend in the investing world. He has a decades-long track record of success. Everything the man touches turns to money. He’s always had a very negative view of the value of an investment in gold – and I think I finally figured out why…

Phillip Patrick Finally Figured Out Why Warren Buffett Hates Gold
Photograph CC BY-NC-ND by Stuart Isett

By Phillip Patrick for Birch Gold Group

It’s a pleasure to reflect on the achievements of legendary investor Warren Buffett. He’s both chairman and CEO of Berkshire Hathaway, and is worth about $50 billion today.

The “Oracle of Omaha” is undoubtedly the most celebrated and revered living businessman in the U.S. today. He made his fortune by investing in businesses based on fundamental analysis, and Berkshire Hathaway has grown twice as fast as the typical American business.

Tens of thousands attend annual Berkshire Hathaway shareholder meetings, and millions more scrutinize his annual shareholder letter for lessons they can apply to their own investing.

Buffett is such an inspiring figure that his advice is often regarded as the gold standard in investing. Almost everything he puts his hand to prospers! He generously shares his wisdom, offering incredibly valuable rules of investing:

Rule 1: Never Lose Money.

Rule 2: Never Forget Rule No. 1.

These resonate deeply with me as essential principles, right up there with Nobel Prize-winning economist Harry Markowitz’s “Diversification is the only free lunch in investing.”

When it comes to investing, he’s a genius – with a solid track record of success to prove it.

However, Buffett takes a unique stance on gold… 

Warren Buffett on gold

In his 2011 shareholder letter, Buffett gave his thoughts on gold. He categorized gold among “assets that will never produce anything,” and then led readers through a thought experiment. It goes like this.

Imagine the same amount of money could purchase either:

  • All the gold ever mined
  • 400 million acres of farmland and 16 large, profitable companies

Buffett invites us to imagine the future: “A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton and other crops – and will continue to produce that valuable bounty, whatever the currency may be.” The companies, he says, “will probably have delivered trillions of dollars in dividends to its owners and will hold assets worth many more trillions.”

In comparison, all that gold? It just sits there. “The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.”

It just sits there – like an anchor. Dragging down the performance of your investments, right? Because, by owning gold, you’re foregoing all the corn and wheat and cotton and profits.

That’s a pretty damning case!

So is Buffett right or wrong?

That’s the wrong question. Instead, ask yourself this.

Are YOU Warren Buffett?

Really – ask yourself this question.

Let’s remember, Buffett is an investing genius. As Einstein was to physics, or Edison to electricity, Buffett is to investing. The man has an undeniable knack! I’m sure that, among the 8.1 billion people on the planet, there are at best a handful as good as Buffett.

Furthermore, investing for Berkshire Hathaway is his full-time job. He spends 40-60 hours a week at work, and he sure loves doing it! He’s 93 years old and shows no signs of slowing down (may we all be so fortunate!)

So here’s my conclusion: if you’re an investing genius like Warren Buffett is, gold probably isn’t for you. You’d probably be better off figuring out which farmland is going to remain productive for a century, or which companies are going to deliver profits – year after year – for a century.

On the other hand, if you aren’t willing to spend 40+ hours a week studying corporate balance sheets and financial statements, then flying across the Midwest to meet with executives running businesses that might turn out to be good investments, gold is worth a look.

But wait, you’re thinking, Buffett said gold just sits there. Correct – and that’s the whole point!

In his example, Buffett made owning gold an all-or-nothing proposition – either you own all the gold in the world, or you own a diversified portfolio of farmland and 16 profitable businesses.

Regardless of how much gold you own, he’s right, it just sits there. For Buffett, that makes gold an anchor – which keeps your wealth from growing.

But when you’re properly diversified with gold and other physical precious metals, they aren’t an anchor. Rather, they become like the pivot of a compass needle. They form the center point around which the rest of your investments swing, up or down.

Physical precious metals aren’t for everyone – they certainly aren’t for the Warren Buffetts of the world. Instead, diversification with gold and silver is for the rest of us.

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