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Is Warren Buffett Missing The Obvious?

 

Why is arguably one of the most successful investors of all time churning out comments that any of us can poke holes in?

Many people swear by his annual shareholder letter and hold it up as the gospel of investing.

But his latest one posted in February has some absolutely strange comments in it.

On page 19, you'll find this comment:

"The major asset in this category is gold, currently a huge favourite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful).  Gold, however, has two significant shortcomings, being neither of much use nor procreative.  True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production.  Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end." (Source)

Wow.

Warren may finally be confused with his wealth principles.

Or he's just talking to the wrong crowd.

In his letter he goes on to say owning acres of productive farmland or a company like Exxon Mobile is far superior than owning gold.

And we agree with him 100%.

It's superior in that they produce REVENUE.

There's no doubt there.

Our preferred revenue producer are starter homes that can be rented out fairly easily.

And we won't argue that owning a lot of farmland or a dividend yielding company like Exxon wouldn't be very valuable.

Of course they would.

But is that the right choice for everyone?

Hardly.

What do you do with your savings?

Has the whole world forgot about saving money ... including Warren Buffett?

You know, the idea that you work hard and SAVE some money for the future.

What do you do with that?

We agree that putting your money into high yielding investments is the way to go.

But what do you do with the money you don't want to put at risk?

The money you want to save because your children are going to university in a few years?

Do you buy some stocks and hold on for the ride?

There's a pretty interesting chart from the Credit Suite Research Institute in February 2012.

(Source)

It shows that during times of of high inflation rates the returns of equities (stocks) has been suprisingly poor (far right of chart).

So if you're someone who believes we may be headed in that direction do you load up on stocks?

In the same quote he implies that you should fear the value of the dollar.

So it seems to us that he's implying you either load up on stocks or any savings you have in dollars are going to lose their value.

Again, we agree with him on dollar losing it's value.

Check out this chart from Casey Research:

(Source)

The purchasing power of your money saved in U.S. Dollars or Canadian Dollars versus gold over the last ten years is clearly on the decline.

It's the last ten years those "easy money" policies by the central banks of the world have really devalued our currencies.

When you make more currency available to the economy the value of the existing stock of currency tends to decline.

You don't need us to know that what you bought for $100 ten years ago is different than what you can buy today for the same amount.

So what is the person supposed to do with their savings?

Invest it in the S & P 500 stocks?

Hold it in cash?

Or hold it in a commodity that according to Warren hasn't much use?

Seems to us that there's a fine use for it.  And it's not just "industrial and decorative".

It can be used as a place for our savings.

To protect our wealth, our purchasing power.

The chart above is clear as day, no?

It's just odd to us that he fails to acknowledge this.

He's too smart for that.

On one hand he's saying fear the dollar losing value but he then ignores the fact that commodities are increasing in value.

We wonder the motivation of his comments.

They're definitely strange and he's too smart of an investor to ignore the obvious.

Anyway...

We should note that all asset classes in our current money system go through boom and bust cycles.

And gold along with other commodities will very likely end in a bubble too.

And at that time we'll be moving on to the next asset class of choice.

Perhaps the peak of the gold market will signal the very bottom of the U.S. real estate market.

Wouldn't that be kind of cool?

Florida here we come.

We'd like to leave you with one a question this week.

If we asked Warren to take his entire net worth and put it in either cash or gold for the next ten years ... what do you think his answer would be?

Until next time ... Your Life. Your Terms.

 

 

 

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0 comments on “Is Warren Buffett Missing The Obvious?”

  1. Hi Tom;

    Your comments are thought provoking... however, I suspect that what Warren Buffet *didn't* say might be important.

    *If* the demand for gold is say, mainly for jewellery in perhaps the Indian/Asian markets and as a hedge in the West, with little industrial based demand compared with production, then it might be that the present demand is speculative and possibly unsustainable, although I grant that the steady historical price increase from $35 per oz (remember those pre-metric days?) supports a different view!

    What Warren Buffet didn't mention was *strategic* precious metals (such as rhodium, titanium, chromium, cobalt and iridium) that may have a substantial industrial demand, limited production compared with demand vis a vis gold, and little glamour appeal. These surely have the potential to provide supportable price levels assuming industrial demand continues, or even declines somewhat.

    The difficulty with stones such as diamonds is that the production is held at controlled levels that support an artificial price, rather than because scarcity of supply supports the price.

    For my 2ยข, I'd put *some* cash into gold because of its popular appeal and liquidity, even through barter if necessary, and a large chunk into strategic precious metals that have a strong basis for their price level, even though they may not have such a large (and speculative) price appreciation potential as gold. If everyone tries to liquidate their gold holdings (you can't eat it, right?) in the same time frame, guess what happens to the price....

  2. Because Warren Buffet wanted to mislead the public since he has invested too much in stocks. If people flock into gold out fear of inflation, or to protect their wealth, naturally the big brother Buffet will loose his wealth. The stock will fall. Today, the gap between Dow index and gold is almost 6 to 7 times, and between gold and silver almost 50 times. Either stocks has to fall or gold has to rise. Or they meet somewhere in the middle. Gold has lots of chances to go as much as 5 grands. If gold is worthless as the Big Brother Buffet has said, then let us invest in silver which is being used almost everywhere from batteries to helicopters to computers. Warren Buffet may be very successful investor, but he is not fit to give us right advise because he has lots of interest in American economy tide up. I simply don't think he is honest. Even if he try to become honest, his shareholders will nail him against the wall. We are loosing our value of the money every minute. We need to find out ways and means to protect it. If 1 million dollars is not that big money today, then it is not easy even to save thousand bucks on the other side. Very very dangerous peoriod. Either invest in real estate and lock up with the interest rates for a long term and invest in silver. That is how I look. I own several properties already before I join the club. I still have to buy my first property through the club. I will do it in due course, inshallah.

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