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Gold & Real Estate are Not Investments - Warren Buffett's test

Warren Buffet is famous for his criticism of gold as an investment. He might as well argue that stamp collecting is not a team sport.

Gold is not an investment. Your primary residence is not an investment. These are not investments any more than a cup of tea is. They are assets.

What’s the difference between an asset and an investment?

The Asset Fondle Test

We’ll use Warren Buffet’s criticism of gold to forge a definition of an asset:

http://smaulgld.com/gold-silver-and-real-estate/

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Warren Buffett guide to

Warren Buffett guide to investing:
1) Invest in the companies that the government will bail out
2) Bail out happens
3) profit

Southern Agrarian

4.proclaim folksy genius. 5.call for tax hikes on the wealthy

6.Repeat

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fireant's picture

7. Bribe government so your businesses benefit.

(Buy railroad then cut deal with president for no oil pipeline so RR gets the business)

Undo what Wilson did

8) Buy small local newspapers

8) Buy small local newspapers to convince the populace you are a good person
http://www.forbes.com/sites/avidan/2013/08/11/when-it-comes-...

http://www.huffingtonpost.com/2012/06/12/buffetts-berkshire-...

Southern Agrarian

Uncertain Times and the Rush to Gold Today

the dollar is down today

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Warren Buffet Buys 130 Million Ounces of Silver!

headline from the late 1990's

http://www.cmi-gold-silver.com/monetarydigests/buy-silver-ou...

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It is said that Buffet once owned 37% of the silver market

http://wallstcheatsheet.com/stocks/warren-buffett-trashes-go...
why did he sell? I've read that the entire silver market is only worth about $30 billion-why a billionaire here or there doesn't try to buy half the supply is beyond me, or why a company that uses silver as a raw material (Apple, Samsung)doesn't load up.

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The believe in the Federal

They believe in the Federal Reserve printing presses.

Buffett is an establishment mouthpiece

He shilled for the bailouts which helped him out.
He hates gold because it is a store of value and out performed him from 2000-2012!!!

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Outperformed!

Buffett's Berkshire Hathaway started in 1967 (that's when the shell company, a former textile mill company, became a conglomerate of insurance and other companies) with a stock price of $20.50. Let's say you invested $1000 with Buffett when he started, and didn't touch that investment at all, through the good years and the bad (and the really bad years were even worse than the bad ones you've managed to include in that range of years you picked entirely at random and without trying to cherry pick the data I'm sure).

Your investment would now be worth $8.2 million.

The lowest price I can find for gold since the 1800's is $18.93/share. Suppose your grandfather had $1000 in gold purchased at that price. Fifty three ounces. You inherited this gold, and sold it at the exact high price of recent history, $1,895 on Sept 5, 2011.

You would have $100,105.

The difference between Buffett's gains from the beginning of BRKA to the present, and gold's gains even cherry picking the exact low and high over an even longer period, would have been $8.1 million. If you had shunned Buffett when BRK was just starting, and put $1000 into gold in 1967 and held it until today, you'd have around $40,000, roughly $8.1 million less than the $8.1 million you'd have had with Buffett's long-term record.

Tell me again why you think he "hates" gold?

You don't have to agree with Buffett's politics to recognize that he knows a few things about investing. If you can't stand to hear a liberal saying anything there are other value investors out there who can tell you essentially the same things. But Buffett writes clearly and has a knack for explaining things simply, so you could do a lot worse than just listening to what he has had to say about investing (not about politics!) over the decades.

Gold is a store of value. Over time it doesn't tend to either gain or lose much in purchasing power, hence the frequently-told account of how an ounce of gold is (approximately) worth the price of a nice suit or the equivalent, today just as it would have a hundred years ago or a thousand. The point of gold is not to lose money in the face of economic disaster. If you had $1,000 in your grandfather's time, you'd have been roughly as well off as if you had $100,000 now. Gold could have stored that value, but that's all it would have done.

Investments, made wisely, can do more than just store value, they can gain value. But for that potential gain you take some risk of losing value. Buffett's investment philosophy is, in a nutshell, about reducing the risk, in a certain way, but it's not zero risk. A single share of BRKA, which at the moment would buy you a very nice suit of clothing, and a 2013 Porsche 911 Turbo Convertible to show it off in, would go to zero in a total economic collapse. But after things settle out, an ounce of gold would still have some value. That's the difference between a store of value, and a good investment.

You make the best point and give very good information

Even here at the Paul people tend to base their thoughts on anger. Sad to see, but anyone basing their theories and life choices on anger are just never going to get it. Disagreeing with a person (Buffet) in theory is different than being angry at them for how they do things.
I recently asked a friend if he was 'angry' at money. It was one of those stumbling moments of catching someone off guard. I didn't mean for it to be, but just so happens that I was right. He has not yet found true understanding of Liberty and equalization that it brings. Even though my friend is a Christian and trained republican, on occasion the anger brings the US child schooling interest of socialism. I fear this is our real problem. The social trained tendencies are to lean on lawmaking (someone else fight your battles) to cure those 'hated' super rich because they must have been doing wrong.
A bunch of other comments give information that has a spark of truth, but if those arguments are made out of anger then those people just can't get past the anger to make a real case for change. Much more work to be done in the world around us. Even here on the Freedom loving DP. Money is a tool and means of exchange. It only has a perceived value of whatever it is at the moment. Similar case for gold and the view of assets. The article was truly good information in describing the difference between an investment and an asset.

Anger on Both sides- its Buffet and Munger that are also angry

Munger, Buffett's side kick at Berkshire hathaway once said
"civilized people don't buy gold" http://www.usatoday.com/story/money/business/2013/09/03/home...

and people who buy golD AR "jerks" http://www.businessinsider.com/charlie-munger-versus-gold-hi...

The point of the article is to point out that buffet is right that gold is not an investment but that is a red herring because gold is not supposed to be compared to stocks.
It should be compared to the dollar and in the blog post you can see gold wins hands down as a store of value.

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Had you invested with Buffet from 2000-2012 vs gold

you would have had your clock cleaned
BTW- you could not invest in gold in 1967- as the price was FIXED at $35 an ounce. People could not buy gold in the US until December 1976.
So those 10 years of (non)price action in gold can't be counted

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Mmmmm, cherries!

You're comparing some of the best years for gold with some of the worst for Buffett. But if you had purchased gold at the lowest price over the past 150 years, and sold it at the highest, you wouldn't have done nearly as well as Buffett did over the long run. If Buffett had put his money into gold instead of investing in businesses that he was convinced were good long-term investments, he'd be poorer by billions of dollars.

That's because gold is a *store* of value, and the point of investments is to try to gain value, but to do that you have to risk losing value.

Gold is, however, an excellent store of value. I'm not in any way minimizing that, just explaining the limitations on what that means. As a store of value it's amazing really. You can put the price of a good suit of clothes away today, and have high confidence that in a hundred years it will still be worth, roughly, the price of a good suit of clothes, in whatever currency tailors are accepting at the time. An ounce of gold will store the value of a high-quality suit of clothing (more or less) in the face of inflation, war, economic collapse, anything, and the proof is in the fact that it has done so for millennia.

If some distant ancestor of yours in ancient Rome had put the price of a good suit of clothing into a lump of gold, and arranged somehow for you to inherit that lump of gold today, the value of that suit of clothing could have been preserved for thousands of years. That's really pretty amazing when you think about it. But it also illustrates the limitation on simply storing value, rather than trying to increase value (with the inherent risks).