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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Warren Buffett On Gold

Warren Buffett On Gold

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1Warren Buffett On Gold Empty Warren Buffett On Gold Wed Apr 17, 2013 6:16 pm

sriranga

sriranga
Co-Admin
Since Gold and Silver are crashing and are on everyone’s mind, here’s an extract from last year’s Berkshire Hathaway’s annual letter to shareholders, where Buffett eloquently reveals how he thinks about the shiny metal:

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite 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.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

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. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Posted by Ivanhoff on April 15th, 2013
http://ivanhoff.com/

http://sharemarket-srilanka.blogspot.co.uk/

2Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 7:16 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Very interesting view.

3Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 7:21 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
However if someone timed the stock bear market and switched to the gold bull and then returned to stocks later , he/she would have been a big winner.

4Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 7:26 pm

sriranga

sriranga
Co-Admin
@slstock wrote:However if someone timed the stock bear market and switched to the gold bull and then returned to stocks later , he/she would have been a big winner.

Timing is the biggest challenge.

http://sharemarket-srilanka.blogspot.co.uk/

5Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 7:47 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Timing is imaginary, can not be done in real world. Successful timers are just random

6Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 8:06 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Exact timing can be imaginary. Yes.


But am sure someone can rough time when to exit and enter another if some patterns are recognized. ( and have lot of experience) . I am talkign about retailers.

But investing is different to trading. So big investors ( top 5-10 maybe )would not/ cannot pull out completly so easily to switch to another.





@salt wrote:Timing is imaginary, can not be done in real world. Successful timers are just random

7Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 8:33 pm

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@slstock wrote:However if someone timed the stock bear market and switched to the gold bull and then returned to stocks later , he/she would have been a big winner.

Our stumpy might've done that Wink He was with these metal since some time lu pirat

8Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 8:36 pm

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@salt wrote:Timing is imaginary, can not be done in real world. Successful timers are just random

Exactly mate, if we can time then we can become multi-millionaires in a month or so.. Many stocks have fallen few months back and within another month's time majority have gone pass 40-50% too..

I think ppl are just randomly calculate the bottoms and hunt considering luck.

9Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 9:08 pm

malanp


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Two years back I saw in Bloomberg TV Warren Bugget is disposing his gold stock, He openly advised against buying gold that time.

After two years he proved he is genious!

10Warren Buffett On Gold Empty Re: Warren Buffett On Gold Wed Apr 17, 2013 9:26 pm

stumpy

stumpy
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Haffoi Small!

Shhhhh Shhhhh! affraid

11Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 12:00 am

Jake Sully

Jake Sully
Manager - Equity Analytics
Manager - Equity Analytics
Gold gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Warren Buffet

12Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 10:27 am

hunter

hunter
Moderator
Moderator
scratch

Just trying to see any similarity in (Past) gold price movement and our Electricity price movement!

jocolor

13Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 4:34 pm

Aubrey Perera


Vice President - Equity Analytics
Vice President - Equity Analytics
Human Greed is the biggest issue in making sensible investment decisions.....Golden Key, Sakvithi and various ponzi schemes have got people losing millions . yet if there is another one tomorrow many will go for it again. Sad but true .

14Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 4:38 pm

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
How about we bet on Sri Lankan electricity prices . Possbily the highest in Asia now.

From 90 to 91 units ( 1 unit) 100% increase. Wow .



@hunter wrote: scratch

Just trying to see any similarity in (Past) gold price movement and our Electricity price movement!

jocolor

15Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 6:16 pm

stumpy

stumpy
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
If we have an index to track "SL Electricity Prices", I'll allocate 100% and use 100% margin too! lol!

16Warren Buffett On Gold Empty Re: Warren Buffett On Gold Thu Apr 18, 2013 7:57 pm

hunter

hunter
Moderator
Moderator
@stumpy wrote:If we have an index to track "SL Electricity Prices", I'll allocate 100% and use 100% margin too! lol!

Was thinking of the same but didn't type; thought someone would do that for me! Laughing

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