Gold Price vs. Warren Buffet – Raw Performance vs. Rhetoric

Gold Price vs. Warren Buffet – Raw Performance vs. Rhetoric

Gold Price vs. Warren Buffet – Raw Performance vs. Rhetoric

The most common urban myth among financial professionals regarding gold is actually a meme* that was started by Warren Buffet. No disrespect to Mr. Buffet, but if you had sold Berkshire Hathaway in 2003 and bought gold instead, your investment would have performed more than 350% better over the last eight years.

This chart shows gold price performance versus Warren Buffets Berkshire Hathaway from 2003.


*Meme – Noun /mēm/

1. An element of a culture or behavior that may be passed from one individual to another by non-genetic means, esp. imitation.

To put it this way, the problem when a person like Warren Buffet says something is that people tend to take it and then repeat it without necessarily thinking it all the way through. I would suggest that it is very dangerous to stop thinking in this environment.

Buffet is confusing “Money” with an “Investment.” You do not “Invest” in money; you temporarily store your wealth in it while you are deciding what you want to invest in. It is wealth in static form, un-deployed as an investment.

The urban myth is this: Gold is a poor investment, because it does not produce a return or a dividend. This is usually tossed into a conversation about gold as if it is some brilliant observation, because someone read what Buffet said recently, and they are parroting back the information.

In the end, however, it’s really great when an intelligent person says this, because it actually proves my point. There is only one other thing in the financial world that behaves in precisely the same manner, and that is money. The USD does not produce a return or a dividend either, unless you invest them or lend them to someone. This is exactly what money is supposed to do – temporarily store wealth until deployed. I have heard otherwise intelligent people belittle gold saying it has no utility; all you do is hoard it and sit on it. If I said the same thing about the USD, you would think I was an idiot, because that is exactly what everyone on the planet does with money.

The thing we must ask ourselves is pretty straightforward: For the cash or “money” part of our portfolio, does it make more sense to store it in paper money that is relentlessly being printed into worthlessness, or in gold which is a real tangible item that will continue to gain in buying power as long as the banks keep printing?