I’m with Buffett on real assets over paper, but on gold he’s flat wrong…I guess Warren found crony capitalism in a fiat world was an easier way to get rich than hard work with honest money…[Let me explain.] Words: 1008
So says W.C. Varones (www.wcvarones.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Varones goes on to say, in part:
Warren Buffett has a good commentary in Fortune [read munKNEE.com’s edited version: Warren Buffett On Why Stocks Are Better Investments Than Gold and Bonds] in which he addresses one of my pet peeves, namely, the fact that academics and the financial industry dumbly equate volatility with risk [Also read Don’t Confuse “Risk” with “Volatility” – It Could Have Dire Consequences on Your Investments] . I don’t give a rat’s ass whether my favorite stock bounces up and down ten bucks every day; what I care about is whether it’s going to keep paying (and increasing!) its dividends and what it’s going to be worth in 20 years. Volatility is not risk!…[Unfortunately, however, he then gets completely off base with his assertion that] what motivates most gold purchasers is their belief that the ranks of the fearful will grow [which is absolutely] wrong. What motivates us is that the mountains of Fed-printed money and Treasury-borrowed debt will grow, and that we like to hold a store of value that the Fed and Treasury can’t debase. All fiat currencies everywhere throughout history, including the U.S. dollar, have declined asymptotically toward zero, while gold has always held its value. Who the F is Warren Buffett to dismiss millennia of history? [If that weren’t bad enough he then goes on to infer that] the scarcity of gold is a reason for gold not to be valuable. Au contraire! As we’ve said before, there’s less than one ounce per person on the planet, and less than five ounces per developed world inhabitant. That would seem to be a reason to get your share now before the rising middle classes in the developing world want theirs.
Buffett goes on to suggest, given his “pile A” and “pile B” argument, [read Varones’ original article here*] that investors would make an all-or-nothing choice between the two. Most sane investors, [however,] realizing both the enduring value of gold and the risk-reducing benefits of diversification, would choose some of pile A and some of pile B. Certainly most would lean heavily toward more of the latter. Even goldbugs like your’s truly argue for very modest asset allocations to gold of 5% or 10% [Read: Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why].
Most investors, however, unfortunately follow Buffett’s dogmatic zero-gold weighting. Ask your friends and neighbors. How many of them have even 1% of their retirement savings in gold? Institutions are little different. Pensions and endowments have big allocations to stocks, bonds, hedge funds, real estate, and private equity, but even a 5% weight in gold is almost unheard of which…[could be considered] criminally negligent given gold’s solid risk and return properties.
I’m with Buffett on real assets over paper, but on gold he’s flat wrong…I guess Warren found crony capitalism in a fiat world was an easier way to get rich than hard work with honest money…
Disagree? Concur? Have your say on the subject via:
We’d like to know what you have to say.
The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137