Whether it’s bullion or tulips, Warren Buffett doesn’t have much time for assets that don’t produce anything.
“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,” the CEO of Berkshire Hathaway Inc. told shareholders in his annual report this past weekend.
Buffett says if the world’s entire gold stock (170,000 tonnes) was melted into one big cube it would be worth $9.6-trillion, by current gold prices.
For that you could buy all the cropland in America, plus 16 Exxon Mobils and have a trillion left over.
A century later the 400 million acres of farmland would have produced a lucrative bounty of crops and the Exxon Mobils, trillions in dividends.
“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,” Buffett wrote.
Buffett took some heat from gold bugs when Fortune published his views earlier this month.
But as Business Insider’s Henry Blodget points out, investors might do well to recall the last two times everyone thought Buffett had lost it.
The first was in the late 1990s when Buffett bucked the trend in the heat of the tech bubble. His comment that he didn’t invest in tech stocks because he didn’t understand them, prompted much ridicule.
But later it was the Sage of Omaha who had the last laugh.
Then in the height of the financial crisis Buffett again raised eyebrows when he urged investors to Buy American.
A couple of months later markets started to rise, and they haven’t stopped since, helping to boost Buffett’s cash pile to US$37.3 billion.
So who’s crazy now?