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Warren Buffet vs Gold and Silver...and the Winner is...

Tuesday May 08, 2012 09:36

Recently, the folks at Berkshire Hathaway have talked down precious metals. Warren Buffet and Charles Munger (two titans of the stock investing world) had made some unkind remarks about precious metals in general and gold in particular.

I have tremendous respect for them (who doesn’t?) and I think that if the topic is “long-term stock investing” then few (if any) could match the performance they have racked up in recent decades. I wish them continued health and prosperity!

But I write this essay for a very specific issue and that is their attitude towards precious metals. I believe that it is a less than stellar record when you scrutinize it.

If you were an investor with them you would obviously be doing it by investing in Berkshire Hathaway, right? Therefore, we could easily construct a scenario where we could have pitted their stock against those barbaric and unproductive metals, gold and silver.

Let’s imagine that you broke up your portfolio into 4 parts and invested equally on the first trading day of 2000 into the following entities;

1) Berkshire Hathaway class A stock
2) Berkshire Hathaway class B stock
3) Gold
4) Silver

How would that type of portfolio performed since the beginning of the millennium?

  1. Berkshire Hathaway class A stock started at $54,800.00/share and closed on April 30, 2012 at $120,800.00 for a total percentage gain of 120.44%. Nice!!
  1. Berkshire Hathaway class B stock started at $35.40/share and closed on April 30, 2012 at $80.45 for a total percentage gain of 127.90%. Also Nice!! (please note that the stock price quoted here is adjusted for stock splits)
  1. Gold started January 2000 at $282.05 (Kitco.com closing price 1/4/2000) and closed on April 30, 2012 at $1,651.25 for a total percentage gain of 485%. Ultra nice!!
  1. Silver started January 2000 at $5.30 (Kitco.com closing price 1/4/2000) and closed on April 30, 2012 at $31.20 for a total percentage gain of 488%. Ultra nice again!!

Given the above, one can see easily that the two most popular precious metals outpaced the stalwart Berkshire Hathaway by 3-to-1 over nearly 11 ½ years. Bashing precious metals for being unproductive is certainly uncalled for…especially given that amazing comparison.

If you noticed, I didn’t choose some arbitrary period like a single year or other short-term measurement. As most of you know, Mr. Buffet (to his credit) is a true long-term investor and patience has been his “secret” to success. He typically doesn’t trade stocks or decides to jump in one day and jump out the next. “Buy and hold” for him is not some flashy saying…it is part of a long-term discipline approach to wealth-building. Therefore, I think the comparison in this essay is valid.

Look…I like stocks and I like precious metals and my Dummies guides on these two topics attest to that. When times are good (I look forward to that), stocks will most likely lead the pack. But when times are as uncertain and as dangerous as they have been (and still are!), you need diversification above and beyond mere paper assets.

There will be plenty of good stocks that should do well during the next few years but I am definitely very bearish on the overall stock market because the massive risks from many venues are still there and in some ways growing more dangerous.

Yes…there will come a day when I am not bullish on gold and silver. However, given that politicians, government bureaucrats and central bankers have not stopped their massive financial and economic mismanagement, that day is still very far away.

Paul Mladjenovic
May 8, 2012

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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