Hi,
This is Vikaas here, Investment Advisor and Founder of www.jaagrav.com. Today I am going to give some perspectives of investing in GOLD, as shared by Warren Buffett of Berkshire Hathaway and Anthony Deden of Edelweiss Holdings.
Some of Warren Buffett’s earlier thoughts around NOT investing in the precious metal stood out:
- “(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
- “It just sits, and there is a cost for it to sit. And an opportunity cost.”
- Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything.
You can fondle the cube, but it will not respond.
While Warren Buffett’s investing prowess is well known, his investment of more than USD 500 mln in Barrick Gold (NYSE:GOLD) some time back and then selling it later came as a huge surprise. The surprise was more from the former because he had always abhorred investing in the precious metal.
Also, selling substantial chunk of the company in just a couple of quarters after having betted on it seems to be one of Warren’s shortest love stories, since he has always maintained that the holding period for a stock should be forever.
Well, it is difficult to decipher as to what changed his mind. While there are various anecdotes which are playing out: Is Mr. Buffett betting against America? Is he betting against the US economy? Should you follow his gold investment? Has he lost his marbles at this age?
While WB is closely followed, there is another portfolio manager called Anthony Deden, Chairman and Founder of Edelweiss Holdings Ltd, (no relation to Edelweiss Group, founded by Rashesh Shah and Venkat Ramaswamy.
Anthony started taking position in gold in 1998 when he visited one of the gold mines and started accumulating physical gold since he felt that it was mispriced. His firm is touted to have one of the largest holders of physical gold in the world.
His views around gold is something which I found extremely fascinating. According to him, gold provides 3 components: Scarcity, Permanence and Independence from the financial system. Have kept some of his thoughts verbatim below:
1st: Scarcity: Anthony’s philosophy has been to look after his client’s savings in a way as if it were the only money in the world they had. While unlike other fund managers or asset managers, he thinks maintaining this principle alone enables him doing the right things all the time. Also, this has propelled some of his clients to put almost all their financial savings and wealth parked with him.
2nd: Permanence: It’s a permanent asset, it’s a durable asset. Any good investment operation, particularly if it involves irreplaceable capital, must have embedded in it a source of continuity and substance and reserves. While years ago, he was ok buying treasury bills, commercial paper, bonds and time deposits. However, over time, he realized that virtually all of those things are actually debt. When you deposit money in the bank, the bank doesn’t actually hold it in their vault, it’s a liability of the bank. When you buy a treasury bill, you’re buying somebody’s debt and you call it an asset. In his words, “So, I decided I want my liquidity not to be somebody else’s liability. I want it to be an asset.”
3rd: Independence: It can be sold to anybody, anywhere in the world at a moment’s notice. Something no one actually owes me. It’s not a claim on anything. It’s not a promise for anything. And there’s a sense of peace that I possess by having financial strength that even central banks don’t have.
The above ‘wisdom’ on why investing in GOLD is perhaps much better than many so-called pundits who rattle some gibberish and their prediction on the pricing of the shiny metal, most of it doesn’t make any sense.
In case you have some time, you should hear him out. It’s gem of a video, around more than 2 hours long, but worth every second of your time.
Hope you enjoyed listening to this!!
For more interesting topics, you may check out my website, www.jaagrav.com. If you want to reach out to me, you may email me at vikas@jaagrav.com
Thanks!