# Warren Buffet on Bonds, Gold and Stocks



## CanadianCapitalist (Mar 31, 2009)

In a column in Fortune magazine, Buffet offers his take on stocks, bonds and gold:

Warren Buffett: Why stocks beat gold and bonds



> My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.





> Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by far the safest.


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## fatcat (Nov 11, 2009)

in fairness, he is an "anti-goldbug", so what he says is predictable

i have changed my mind about gold over and over and over ...

but i am sliding toward the buffett point of view

good companies that produce useful products are probably the best inflation hedge without the scary downside that gold represents

any bug out there that doesn't acknowledge the downside that gold has is as prejudiced in favor as buffett is against

i would be very interested to see what he says about owning base metals  (in a commodity fund) however, since i believe that is another story


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## OptsyEagle (Nov 29, 2009)

fatcat said:


> in fairness, he is an "anti-goldbug", so what he says is predictable


Yes, but at least he can explain in 2 minutes or less, why he is an anti-goldbug.

Try to get a good answer out of why others want to hoard the stuff and it usually takes a lot longer and very few of the reasons would provide them enough conviction to keep holding it, during a declining gold price or rising interest rates.


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## CanadianCapitalist (Mar 31, 2009)

I was more interested in his take on bonds. I also think bonds are likely going to be bad places to be over the next 10 years. 10-year bonds are yielding 2%, the same as the rate of inflation. In real-terms the return from bonds is zero. With stocks investors can earn 2.5% in dividend yield alone. That suggests stocks are likely to be better bets than bonds over the next decade.


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## fatcat (Nov 11, 2009)

CanadianCapitalist said:


> I was more interested in his take on bonds. I also think bonds are likely going to be bad places to be over the next 10 years. 10-year bonds are yielding 2%, the same as the rate of inflation. In real-terms the return from bonds is zero. With stocks investors can earn 2.5% in dividend yield alone. That suggests stocks are likely to be better bets than bonds over the next decade.


i have been thinking about this as well ... if we are in a world where too much money is chasing too few investment vehicles, then we are likely to see very low interest rates for bonds for a long, long time (i.e. money is cheap) but the demand for goods and services is bound to rise with india and china now chugging toward first-world status so equities look very good in that scenario

i have made DIA a portion of my usd allocation (along with VDC, VWO and QQQ) and am very happy with my choice ... i tend to view investing in DIA (as one example) as about as solid as a decent corporate bond portfolio

i tend to believe that we are now truly entering the long predicted science-fiction world of the rise of the corporations and the increasing decline of the nation-state


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## OptsyEagle (Nov 29, 2009)

fatcat said:


> i tend to believe that we are now truly entering the long predicted science-fiction world of the rise of the corporations and the increasing decline of the nation-state


I hope we get some "rollerball" out of it.


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## Spidey (May 11, 2009)

Vancouver's Michael Campbell made an interesting comment on his Moneytalk radio program, "Gold is a bet against the fiscal competence of world leaders."

That being said, gold only occupies a very small portion of my portfolio.


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## Miser (Apr 24, 2011)

Spidey said:


> Vancouver's Michael Campbell made an interesting comment on his Moneytalk radio program, "Gold is a bet against the fiscal competence of world leaders."
> 
> That being said, gold only occupies a very small portion of my portfolio.


I think it might have been this:

"Gold is a bet against the fiscal *IN*competence of world leaders."

He sez you should have 20% in a base gold holding. He has more in short term.
I listen to him every week.


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## Argonaut (Dec 7, 2010)

Buffet only understands stocks and not gold. 25% each in gold and bonds would have carried your portfolio all the way so far in the 21st century. You have to be diversified. And by diversified I don't mean between countries and regions, I mean between asset classes and stocks are only one of them.


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## hboy43 (May 10, 2009)

Argonaut said:


> Buffet only understands stocks and not gold. 25% each in gold and bonds would have carried your portfolio all the way so far in the 21st century. You have to be diversified. And by diversified I don't mean between countries and regions, I mean between asset classes and stocks are only one of them.


I am not diversified between asset classes. I have never held gold or bonds. I have done fine.

My rule would be you have to buy low and sell high. Doesn't much matter what you trade in.

I'd be delighted to understand stocks and not understand gold as Buffet does.

hboy43


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## Argonaut (Dec 7, 2010)

Then hboy, you've done great. Perhaps I'm speaking for the average Joe who certainly hasn't been able to milk too much from the stock market so far this century.

Not quite sure what conclusions I can draw from Buffett. I admire the vision of the preeminent capitalist who lives by modest means, and a lot of his advice is exemplary. But some of the things he says like the gold cube rub me the wrong way. Plus he has a tax proposal named after him. Shudder.


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## zylon (Oct 27, 2010)

*Crony Capitalism*



> Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth. ~Wiki





> Butler on Business 02.09.12
> 
> Episode Summary
> 
> *Seg. 5 - Joe Herring, ReadMoreJoe.com, gives us an update on the Keystone XL pipeline saga and explains that the railroads were more than a lucky investment for Warrent Buffett and Bill Gates.*


http://www.butleronbusiness.com/podcasts.html

Segment 5 starts at 44 minutes into the podcast.


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## Xoron (Jun 22, 2010)

Argonaut said:


> Then hboy, you've done great. Perhaps I'm speaking for the average Joe who certainly hasn't been able to milk too much from the stock market so far this century.


My gut feeling is that the average Joe is exactly the wrong person to be invested in Base Metals. Can the average investor stomach the decade long cycles gold goes into? Much less the multi-year cycles of stocks.

Gold (and the other base metals) have a place in the investment world, just not in my portfolio. I'll stick with stocks, and even consider stocks of gold producers, just not the base metal.


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## pwm (Jan 19, 2012)

*Long bonds are financial suicide*

Long bonds have been a great investment for 25 years as interest rates have declined. However with rates at 60 year lows and nowhere to go but up, they look like financial suicide to me. Same for annuities. 

With bank stocks paying a 5% dividend and long bonds paying 2% interest why would anyone be in long bonds at this point in time? Especially government bonds which have an even lower yield than corporates.


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## fatcat (Nov 11, 2009)

Miser said:


> I think it might have been this:
> 
> "Gold is a bet against the fiscal *IN*competence of world leaders."
> 
> ...


i listen to him as well and as you know he heavily weights his guests to the metals and commodities space ... he is definitely a goldbug ... the thing that campbell misses is that our leaders may be incompetent but they also make the laws and that gives them the opportunity to cover their incompetence ... politics is now just as important as the marketplace


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## Argonaut (Dec 7, 2010)

Refute to Buffett and his "cube":

http://www.zerohedge.com/news/whither-gold

Note how gold can be loaned with interest.


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## boipinoi604 (Feb 13, 2012)

CanadianCapitalist said:


> I was more interested in his take on bonds. I also think bonds are likely going to be bad places to be over the next 10 years. 10-year bonds are yielding 2%, the same as the rate of inflation. In real-terms the return from bonds is zero. With stocks investors can earn 2.5% in dividend yield alone. That suggests stocks are likely to be better bets than bonds over the next decade.


If you are concern about inflation, why not Real Return Bonds.
Then again, you will be lock in as it has usually long maturity.
I like bonds, if given a choice between bonds and stocks with the same yield, I would chose the former for it offers the safety of principal.


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## zylon (Oct 27, 2010)

*Bill Bonner*

Snip:


> But who knows? Maybe Buffet will be right.
> 
> Still…we’ll stick to our formula.
> 
> ...


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## londoncalling (Sep 17, 2011)

I thought this was an interesting place to post this move by Berkshire on Friday. Looking back at the thread I am curious to see if anybody has changed their previous opinions.









Warren Buffett’s Berkshire Hathaway Bought Barrick Gold and Dumped Occidental Petroleum


Berkshire Hathaway slashed its investment in JPMorgan, exited positions in Occidental Petroleum and Goldman Sachs, and bought Barrick Gold and Kroger stock, all in the second quarter.




www.barrons.com


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## Topo (Aug 31, 2019)

Recently, it seems to me that WB is more inclined to chase performance rather than stick to his tried-and-true strategy of value investing. I don't find any reason to follow his random moves. He may have a strategy, but it is hard to fathom what he is looking for by all of these trades.


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## doctrine (Sep 30, 2011)

A lot of these positions are pretty minor and won't move the needle, and are almost certainly being made by lower level portfolio managers. One meaningful investment BRK made was into Apple starting in 2016, and they have amassed around 250M shares at around $145 a share cost basis, or about $36 billion US. Those shares are now worth $115 billion US. By comparison, the Barrick stake is worth about $0.46B US. It's a rounding error in their portfolio, less than 0.2% of its stock portfolio alone.


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## james4beach (Nov 15, 2012)

Buffett could also be making a short term trade or speculation. He's not always a long term investor; a recent example was his quick entry and exit from HCG. This Bloomberg article also reminds us:



> Buffett might’ve been averse to gold in the past, but he has bet big on metals before. In 1997, he bought 129.7 million ounces of silver, banking on demand exceeding production and re-use. He bought most of it for less than $6 an ounce and sold it soon after, he said nine years later. “I was the silver king there for a while,” he said at the time.


So he's bet on precious metals before, and he does speculate sometimes. This is similar to my own positions in Canadian miners (FNV and WDO). They aren't intended to be lifelong holdings, but I certainly will try riding the bull cycle for a while. I'm up about 30% on these since buying earlier this summer.

My guess is that Buffett & team believe we are in a bull phase for gold and are trying to speculate a bit on this trend, which is a completely valid trade to make.

My bullion positions (MNT, CGL.C, IAU) _are_ intended to be long term holdings and I suspect that Buffett doesn't like that kind of thing.


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## Topo (Aug 31, 2019)

doctrine said:


> It's a rounding error in their portfolio, less than 0.2% of its stock portfolio alone.


That raises the question of what the purpose of such a low allocation is. If he believes in it, maybe he should allocate a reasonable portion of his portfolio to it.

It is possible he just opened the position and will be adding to it over the years too. That has to be seen.


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## Topo (Aug 31, 2019)

james4beach said:


> Buffett could also be making a short term trade or speculation. He's not always a long term investor; a recent example was his quick entry and exit from HCG.


That is true. Is he a good short term trader or speculator? I don't know. He certainly has enough knowledge and the right temperament to take advantage of inefficiencies from time to time. But most of his success seems to have been the result of long-term value investing. I suppose there are hedge fund managers who are better traders than WB is.


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## james4beach (Nov 15, 2012)

The Barrick purchase is looking less like a one-off fluke and more like part of a broader strategy. Bloomberg is reporting that Berkshire has bought $6 billion in Japanese commodity companies. Here are the recent purchases:

July ... $4 billion into US natural gas pipeline
Aug ... roughly $700 million into Canadian gold miner
Now ... $6 billion into Japanese commodity companies (very broad commodities)

I looked into some of the _sogo shosha_ he bought in Japan, and there's quite a bit of mining in their business lines, though they really dabble in everything ... agriculture, textiles, mining, energy. But it shows that the Barrick purchase was part of a significant portfolio, not a meaningless investment that "doesn't move the needle".

This is a pattern. Nearly $11 billion into commodity investments, spanning energy, mining, precious metals, everything else. Mostly global.

IMO this is a long position in global / broad commodities. "Buy low", I guess.


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## MrBlackhill (Jun 10, 2020)

(Deleted)


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## MrBlackhill (Jun 10, 2020)

Thanks for sharing that info. I'd see it as a bet on Japan economy. Japan is the 3rd greatest economy and they managed COVID very efficiently. But that's the most I can see out of this as I'm no good with international economies.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Thanks for sharing that info. I'd see it as a bet on Japan economy. Japan is the 3rd greatest economy and they managed COVID very efficiently. But that's the most I can see out of this as I'm no good with international economies.


You wouldn't agree that he's building a long position in commodities?

I agree, he does seem bullish on Japan but let's not forget he also spent an enormous amount of money on that natural gas infrastructure in the US.


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## MrBlackhill (Jun 10, 2020)

I'm not sure about his positions in Japan, from the little that I know they are business-oriented / trading-oriented groups, not direct producers, they are doing imports & exports and trades, but yes it's mostly about commodities. And I wouldn't be able to say about Mitsubishi. I see it more about Japan's imports & exports and trades, so that's why I see it as a bet on Japan economy instead of being specific to commodities.

About energy (natural gas), the portfolio used to hold energy, but recently it was holding only a tiny bit of Suncor, so I guess they just thought it was the right time get back into energy, maybe? And they went for natural gas instead of oil.

But, I mean, that's my two cents and I really have no idea of what I'm talking about at the moment, I'm just trying to figure it out...


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## londoncalling (Sep 17, 2011)

I am entertaining adding to materials and commodities as I have been mainly focused on utilities, pipelines, telcos and financials for the past year. Between underperformance and allocation of new cash this sector is very underweight. I don't plan to add any oil or gas stocks as I have sufficient holdings in IPL, TRP and ENB. I would consider adding to mining stocks such as potash, uranium or other miners. Too late in my view to add to gold but I may miss out on the flight to safety should we see the second leg down. The play on Japan is definitely an interesting one and an unexpected move to a non expert such as myself.


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## londoncalling (Sep 17, 2011)

and he makes another move









Reuters | Breaking International News & Views


Find latest news from every corner of the globe at Reuters.com, your online source for breaking international news coverage.




ca.reuters.com


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## MrBlackhill (Jun 10, 2020)

That's almost reducing by half.





__





BERKSHIRE HATHAWAY INC Top 13F Holdings


Detailed Profile of BERKSHIRE HATHAWAY INC portfolio of holdings. SEC Filings include 13F quarterly reports, 13D/G events and more.




whalewisdom.com





And, as always, I like to recall that BRK portfolio is about 45% in a single stock (AAPL) and the top 6 holdings make 80% of the portfolio.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> And, as always, I like to recall that BRK portfolio is about 45% in a single stock (AAPL) and the top 6 holdings make 80% of the portfolio.


If you ignore all their fully owned companies, and bonds, sure.

The balance sheet shows they own $162 billion in cash/fixed income, and $207 billion in the stock portfolio.

Let's also remember that their "stock picks" are only 1/4 of their assets. People talk as if Berkshire is all about the stock picks.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> If you ignore all their fully owned companies, and bonds, sure.
> 
> The balance sheet shows they own $162 billion in cash/fixed income, and $207 billion in the stock portfolio.


That's a good point and I'm no expert but I'm not sure how we should see that... When I'm talking about BRK's portfolio, I'm talking about its active investing portfolio as what most of us do when we are talking about "our portfolio".

When I'm talking about my portfolio, I'm talking about my equities, bonds, commodities, etc. in which I actively invest in the market. I'm not talking about my cash nor my property... That global picture seems more like how my net worth is distributed, it's not about my portfolio.

So... yeah... I'm talking only about that $207 billion stock portfolio which 45% of its value comes from a single stock (AAPL) and 80% of its value comes from only 6 stocks. The same way I'm talking about my own portfolio without taking into account that I have cash and fixed income from my property.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> So... yeah... I'm talking only about that $207 billion stock portfolio which 45% of its value comes from a single stock (AAPL) and 80% of its value comes from only 6 stocks. The same way I'm talking about my own portfolio without taking into account that I have cash and fixed income from my property.


Fair enough but I think it's good to keep the context in mind. For example when I talk about my 5-pack, people sometimes say ... wow you have 20% in a single stock, ENB?

And my answer is no, my 5-pack is within a broader mix of assets. So my ENB position is really only 3% of my assets.

Maybe it's a similar thing with Berkshire. AAPL is about 12% of their assets... that's still huge, but it's 12% of the overall. Maybe that doesn't feel like too much concentration to them.


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