Buffett Gets 'Comeuppance' After Gold Outperforms 29 comments
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Bloomberg has covered our recent research concerning Warren Buffett's Berkshire Hathaway (BRK.A) poor performance versus gold in recent years. Buffett is the most successful investor in the world but his lack of diversification and almost exclusive focus on equities may bring further pain to his shareholders in the coming years.
Our research shows that not only has gold vastly outperformed the revered Buffett's Berkshire Hathaway shares but investors were also rewarded with considerably less volatility (gold at 16% and Berkshire H shares at 23%) than Berkshire shares and most national indices. as the Nikkei, FTSE and S&P500.
Buffet himself emphasised the non-productive aspects of gold in a speech in 1998:
It gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it.
As Marc points out and financial advisers in the UK and internationally are belatedly discovering - "Perhaps gold's utility is in balancing a portfolio?"
This is why high net worth individuals, institutions and central banks including the People's Bank of China are becoming net buyers of gold again.
BLOOMBERG ARTICLE
By Claudia Carpenter
June 4Berkshire Hathaway Inc. Chairman Warren Buffett is getting his "comeuppance" after rejecting gold as an investment four years ago, according to Marc Westlake, head of wealth management at Dublin-based bullion brokerage Gold & Silver Investments Ltd.
The chart of the day shows gold more than doubled since May 2005, while Berkshire Hathaway's Class A shares gained 6.8 percent. Buffett said at the company's annual meeting in May 2005 that he wouldn't get rid of assets for "a hunk of metal which had no real utility other than to people that are fleeing the dollar."
The point is gold has preserved a chunk of wealth that would have been otherwise taken down with other financial instruments," Westlake said by phone from Cork, Ireland, on June 1. "Maybe what were seeing is Warren Buffett's comeuppance."
Buffett didn't respond to a request for comment left with his assistant, Carrie Kizer.
Gold has climbed 9.4 percent this year as investors sought a haven from declines in the stock market and, more recently, the dollar. The Standard & Poor's 500 Index of shares has climbed 2.6 percent this year.
Buffett transformed Berkshire Hathaway over four decades from a once-failing textile manufacturer into a $139 billion investment and holding company. While gold has doubled since 1988, shareholders in the company have seen the value of their investment surge almost 25-fold.
Graph of Berkshire Hathaway (A Shares) compared to spot price gold May 1999 to May 2009
Disclosure: No positions
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On Jun 05 08:52 AM raytaythemd wrote:
> ...Buffett's a long term investor so wouldn't it be more appropriate
> to compare his company's performance with gold over, say, a 20-30
> year period?...of course, then gold would probably lose its "glitter"
> and the gold bugs would have to scurry around trying to find yet
> some other specious reason to buy gold.
–Alan Greenspan (1967)
On Jun 05 09:51 PM Plebian wrote:
> "In the absence of the gold standard, there is no way to protect
> savings from confiscation through inflation. … This is the shabby
> secret of the welfare statists’ tirades against gold. Deficit spending
> is simply a scheme for the confiscation of wealth. Gold stands in
> the way of this insidious process… It stands as a protector of property
> rights. If one grasps this, one has no difficulty in understanding
> the statists’ antagonism toward the gold standard."
>
> –Alan Greenspan (1967)
I totally agree with Alan Greenspan's comments. I too wish we could have a Gold Standard or at least a stable money policy (Bimetalism, or a currency backed by commodities).
Greenspan had the attitude that a stable dollar was a good thing. He firmly believed that inflation was a destroyer of wealth. He was in charge of the machinery that could produce a stable dollar. And he was (supposedly), ran a totally independent organization, free to do as he wished, free from political influence.
Yet, during his tenure inflation persisted. Why? a) Because he did not have a Gold Standard mandate and b.) The gravitational pull of the political forces around him were too hard to resist and c.) He had a legislated mandate to "ensure full employment."
Politicians have found a way to secretly suck money out of the pockets of the electorate (thru inflation and deficit spending) without having to be political unpopular by raising taxes. The political forces (the gravitational pull) on Greenspan must have been immense.
On Jun 05 09:51 PM Plebian wrote:
> "In the absence of the gold standard, there is no way to protect
> savings from confiscation through inflation. … This is the shabby
> secret of the welfare statists’ tirades against gold. Deficit spending
> is simply a scheme for the confiscation of wealth. Gold stands in
> the way of this insidious process… It stands as a protector of property
> rights. If one grasps this, one has no difficulty in understanding
> the statists’ antagonism toward the gold standard."
>
> –Alan Greenspan (1967)
I own both BRK-B and Gold in approximately equal dollar values. I think Gold does better when the economy sucks; BRK-B does better when the economy rocks.
Buffett's problem of the day is that his companies are earning slower, and not beating inflation. When inflation is tame, he gives us great companies that beat inflation and deliver real returns. But that is not the situation now, and probably won't be for the next six years or so. It doesn't have anything to do with Obama either; it is just the natural outcome after deregulation allowed speculation to destroy the financial system. Until we get over that, BRK isn't going to do that great because nothing is going to do that great.
It is by far more logical still than buying gold.
1/22/1980
Gold: $737.50 BRK: $335
6/06/2009
Gold: $954.60 BRK(A): $89,800
All these comments sound very much like those made in 1999 in the pop financial media. Just substitute the word "Gold" for the words "Internet stocks". I'm holding my "Bs" and watching Warren make a bunch of %10 guaranteed plus warrants type investments. These investments WILL double in 7 years (or less depending on warrants). Please list YOUR guaranteed gold price in 2016. in addition, he is adding to his stock holdings at bargain prices.
Apparently the central banks of the world disagree as they have spent huge sums of money to purchase, store, and guard most of the gold that has ever been mined throughout history.
The true intrinsic value of gold lies in the fact that man cannot create it from nothing and there are limited supplies. Do a little research on the necessary properties of money.
Austrian economics posits that nothing has intrinsic value, only imputed value based on personal opinions. Insulin is worth more to a diabetic that to most people because he needs it to survive.
When someone asks what something is worth, you should mentally tack on the phrase "to whom". What is gold worth? TO YOU it may be worthless, while to a jeweler it may have a much higher value, being his stock in trade.
If people didn't have different values for items, they would never trade with each other. The gold spot price is the most recent 'value' of gold based on what one person was willing to sell for and another was willing to buy for. Each one believes he got the better value out of the transaction or he wouldn't have agreed.
You wrote: "Surely, when you [Buffett] helped put the current [US government] regime in office, you moved shareholder money into foreign currencies and mining concerns. Surely, you knew that the powers that be, your freinds, would drive us into the ditch, on purpose, so they could build their Progressive dream country from the rubble."
Excellent point! Surely he did.
When Buffett's interviewed he speaks with a cool aplomb that “the world is going to be a better place for our children than for us.” He implies that Obama, Pelosi, and Reid are doing the right things and will fix everything for us, so we’re simply to sit back and not worry --- hold on to our stocks and stay put.
That’s his tale; we all have ours.
Although I'd be scared shitless shorting gold in the near term, I feel much more secure holding UNG or DBA than GLD.
BTW, Natural gas just doubled bottomed on ridiculous volume.
On Buffetts worst day I would trade with him for over the years he has done fine. I do not, however, like him, his stance, his politics or anything else except his financial position which has been won by taking huge risks in mkts for a long time proving, sticking to your guns is fine over the long term, but switching with the ebb and flow of the currrent economic trends would probably have stood him better.
I find that swimming against the main current is not usually healthy, and going with the flow will hold up best, but that entails you knowing when your direction is wrong, and not be afraid to short the market.
In any case, gold held long term will probably be a winner, and so will stocks, it really depends on yhour starting point, holding ability, and cash flow to use while you are waiting to be right in your views.
For me, I simply pretend each trading day is a new situation, I have been given $000,000,000.00 and start fresh taking a look from where to where the wind is blowing, and put up my sails for that direction. I am doing better and better the more I follow the wind and not try to sail into it.
Capt Brian
On Jun 05 04:56 PM optionsgirl wrote:
> Gold bugs don't need "specious" reasons to buy. There are enough
> genuine reasons to own it.