Warren Buffett has long held that gold investing was outside his realm, yet this year his company, Berkshire Hathaway, purchased shares in Barrick Gold – one of the world’s largest gold miner.
Buffett has long held an antipathy towards gold and other precious metals. What led him to reverse course now?
Why Does Buffett Not Invest in Gold?
Warren Buffett is one of the richest people in the world and built his fortune through a straightforward investment approach: invest only in businesses that generate profit while eschewing investments that don’t produce any return at all. Thus many were surprised when Berkshire Hathaway invested in gold miner Barrick Gold in 2020.
Buffett tends to avoid investing in precious metals due to their ineffective return. He prefers productive assets such as stocks, bonds and real estate as more profitable investments.
He contends that neither gold nor silver has any intrinsic value; their price is determined primarily by irrational fears in investors, leading him to conclude that gold is nothing but an overblown bubble similar to what was seen during Tulip Mania of 1634.
Why Does Buffett Not Invest in Silver?
Buffett invests his personal funds and that of Berkshire Hathaway primarily in two forms of assets: whole companies and stocks. He does not invest in silver; therefore it falls outside either category.
He adheres to a value investing philosophy, which involves finding undervalued assets with long-term growth potential. His foray into silver market during late 90s illustrates this investment approach.
Buffett identified copper as an undervalued asset at that time, when prices were below $4.50 per ounce. Cynics might assume he only sold when prices rose above $6 per ounce, yet such claims disregard Buffett’s long-term focus and keen analysis of business fundamentals.
Buffett has long criticized speculative assets like precious metals and cryptocurrencies as they do not produce any tangible benefit to their owners; their only value lies in someone willing to buy them from someone else. He prefers productive assets like stocks, real estate, bonds and farmland instead.
Why Does Buffett Not Invest in Gold Miners?
Although Warren Buffett had previously disapproved of gold as an investment option, Berkshire Hathaway recently invested over half a billion in Barrick Gold stock – seemingly an unexpected move that caused many to speculate whether he has changed his opinion regarding precious metals investments.
Buffett’s move was likely driven by his core value investing principles: Buffett believes a company’s stock price should reflect its actual earnings potential rather than sentimental or historic valuation, so when he sees one with strong earnings prospects trading below historical valuation he purchases.
Buffett has also expressed distaste for unproductive investments such as gold or cryptocurrencies in recent years, preferring more productive investments such as stocks, farmland, bonds and real estate over such speculations as gold or cryptocurrencies which offer no tangible return. Unproductive assets don’t produce anything over time whereas productive ones, like crops or businesses can continue to produce income for their owners.
Why Does Buffett Not Invest in Gold ETFs?
Buffett has long made clear why he doesn’t invest in gold. Instead, he prefers investments with consistent profits that have the potential for growth over time – productive assets are truly wealth creators whereas gold doesn’t generate anything tangible, it only holds value due to belief among some that its price will increase in the future (this phenomenon is known as “the greater fool theory”).
Gold falls into the category of unproductive assets, which Buffett believes will yield greater returns over time compared to more speculative investments like gold or cryptocurrencies.
Additionally, he believes it’s crucial to fully comprehend what one is investing in; therefore he tends to invest in businesses he can easily grasp and analyze. When making decisions he also takes opportunity costs into consideration: every dollar invested could potentially go toward something else that will grow over time.