Warren Buffett had an abbreviated version of his annual shareholder letter in this week’s edition of Fortune. No matter how one feels about his socio-political homilies, the man is a genius at investing and thinking about investing.
Gold, he says, cannot ever rise to the level of a stock investment because it has no inherent way to grow. Its purchasers, he argues, are always fearful. Gold does not pay dividends. It has no product attached — you can’t drive it, fly it or use it for recreation. In short, gold is pretty useless stuff, except for a few electrical and chemical uses and for adornment. In the Fortune piece, he compares it to equity investments. It’s a great read.
I buy what Mr. Buffett says (and you may see the entire text of his 2011 letter to shareholders soon at www.berkshirehathaway.com). However, I have a question: if India (as discussed in last week’s blog), is responsible for buying 32% of the world’s gold and its middle class is growing exponentially, will increased demand there (middle class growth x new gold purchases = high demand) keep prices artificially high? Remember, folks who live in India don’t think of gold as a hedge or even, as you might guess, given the bling worn there, as jewelry. Instead, Indians think of gold as savings.
And Barron’s is thinking about a 15,000 Dow, in part based on analysis by professor Jeremy Siegel of Wharton. If things keep percolating along, we could have good market performance. Stay tuned.
As to real investment gold, you may examine any of Warren Buffett’s letters on the aforementioned Berkshire Hathaway website 24/7; they go back all the way to 1977. While you are at it, check out the performance of Berkshire vs. the S&P.
Have a great week and preach the gospel of equities.