Warren Buffett on Investing in Gold

“If you have the opportunities of Berkshire, an investment in gold is dumb.” -Charlie Munger

Jump into my time machine for a look at Warren Buffett’s thoughts on investing in gold. Navigate back to 2014 when Mr. Buffett gave his take on gold as an investment to the talking heads on CNBC. Mr. Buffett describes gold as “a way of going long on fear.” He says historically gold has been a pretty good way of going long on fear from time to time, but when you invest in gold, you have to hope people become more afraid in a year or two. If they become more afraid, you make money. If they become less afraid, you lose money.

In the interview he says all the gold in the world would roughly fit into a 67 x 67 foot cube and be valued at somewhere around $7 trillion dollars. About a 1/3 of the value of all stocks at the time. You could own a block of gold that doesn’t do anything but shine, or a third of the stock market.

He explains all of the farmland in the United States is worth about $2.5 trillion dollars. To put it in perspective, Mr. Buffett claims you could have all the farmland in the United States, seven ExxonMobils, and $1 trillion dollars of ‘walking around money’ or, a shiny block of gold.

The ‘Oracle of Omaha’ sums it up nicely: “Call me crazy, I’ll take the farmland and the ExxonMobils…”

Mr. Buffett also notes his preferred investments are income producing assets. He says he vastly prefers to own common stocks over a five or ten year period. When it comes to investing, Mr. Buffett says you should look for something you put money into and the asset gives you back more money over time.

For him, the problem with commodities in general is you’re betting on what somebody else will pay for them in six months time. The commodity itself isn’t doing anything for you.

Mr. Buffett describes two types of assets to buy. One where the asset itself delivers a return to you such as rental properties or stocks. The second are assets you buy where you hope somebody else pays you more later on. The asset itself doesn’t produce.

According to Mr. Buffett, those are two different games and he regards the second game as speculation. In his words: “It is an entirely different game to buy a lump of something and hope that somebody pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”