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Financial Face-Off: Warren Buffett Vs. Gold and Silver


And the winner is...

Recently, the folks at Berkshire Hathaway (BRK-A) have talked down precious metals. Warren Buffett 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 was "long-term stock investing," then few (if any) stocks could match the performance that Berkshire Hathaway has racked up in recent decades. I wish them continued health and prosperity!

But I write this essay to focus on a very specific issue, and that is their attitude toward precious metals. I believe that it is a less-than-stellar record when you scrutinize it.

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

Let's imagine that you broke up your portfolio into four 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!

2. 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.)

3. Gold started January 2000 at $282.05 ( closing price 1/4/2000) and closed on April 30, 2012 at $1,651.25 for a total percentage gain of 485%. Ultra-nice!

4.Silver started January 2000 at $5.30 ( 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. Buffett (to his credit) is a true long-term investor and patience has been his "secret" to success. He typically doesn't trade stocks or decide 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 disciplined approach to wealth-building. Therefore, I think the comparison in this essay is valid.

I like stocks and I like precious metals. 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, that day is still very far away.
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No positions in stocks mentioned.
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