Buffett on Gold, Farms, and Businesses

From an interview in Fortune with Warren Buffett back in 2010:

Buffett: Forget Gold, Buy Stocks

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take?"

Buffett goes on to say he prefers equities.

Keep in mind he said the above when gold was much lower than it is today.

More recently, Buffett added the following during this CNBC interview:

Joe Kernen: You have said many times that if you could own, vs. gold, all the farmland in the United States, you'd rather have that than all the gold in the world. Have you gone in and looked at any farmland, any real estate like that?

Warren Buffett: No. I own one farm that I bought about 25 years ago my son farms, and so we're exposed to farming in the Buffett family. He's going to take care of me if it turns out that farms are really the thing to have instead of businesses. But I believe in owning productive assets...whether it's farms, apartment houses or businesses. And they'll do very well over time, and sometimes one class is doing better than another.

In the late 90s, before one of the worst decade for stocks was about to occur, Buffett warned that equities were overvalued and that future returns were likely to be sub-par.

Buffett on Stock Valuations

...Warren Buffett was considered by some of the more "go-go" investors of that day as something of a "has been" – an investor who had peaked who was even called "extinct" for staying out of high tech stocks. He was seen as a "your-father's-Oldsmobile" investor at a time when all the kids were buying up those hot, high-tech Lamborghini type stocks. Buffett was skeptical of high-tech stocks and how they made money. He warned of an overvalued market that was heading for trouble. In fact, at that famous summer gathering of media, technology and financial moguls at Sun Valley, Idaho, Warren Buffett was asked to give the concluding talk in July 1999. His remarks, though politely received, supported the view among the smart set that Buffett was out of touch with the "new paradigm" of high technology and ever-rising internet stock valuations.

Buffett's talk — complete with stock market history, slides and charts, careful Warren Buffett reasoning, and a share of corny examples – delivered a message that most of his high-tech listeners and their financial sidekicks were not keen to hear. There was no "new paradigm," Buffett said. The market could only yield what the economy produced, and this market was way out of sync in that respect. The next seventeen years, he explained, might not look much better than the dismal 1964-to-1981 period when the Dow had gone exactly nowhere.

Here is a very useful summary of what Buffett was thinking in 1999.

When equity investors could only see blue skies -- and sky high returns -- going forward, Buffett was warning of trouble ahead. It hasn't been 17 years yet but so far the market has, in fact, pretty much gone nowhere.

At that time, not many seemed interested in giving his warning much weight.

Now, when many investors seem to want nothing to do with equities, Buffett is bullish.*

Based upon track record who's more likely to be correct?

Ten or so years from now will it be obvious that the same mistake, only in reverse, was being made?


* As always, the investing horizon has to be at least five years and more like ten years. It's about growth in intrinsic value over a long period not the price action (up or down) in a week, month, or even a couple years. What matters is the compounded return that can be produced for the risk that is taken. Near current valuations, likely risk-adjusted returns make some stocks very attractive. As always, paying a plain discount to value helps regulate the risk.
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Buffett on Gold, Farms, and Businesses
Buffett on Gold, Farms, and Businesses
Reviewed by jembe
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