BLOGNAME: LOUDER THAN WORDSAn informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur
|All That Glitters|
Shiny Commodities Inspire A Common Oddity
By Paul Tomori
Thursday, May 05, 2011 at 09:57:11 (EDT)
I had the distinct pleasure of attending the Berkshire Hathaway shareholder meeting in Omaha Nebraska last weekend. What an event! They call it Woodstock for capitalists and I think 40,000 fellow attendees would agree.
Listening to 80 year old Warren Buffett and 87 year old Charlie Munger speak for about 6 hours might put some people to sleep, but I sat with rapt attention the entire time. There is much to say about what was discussed, but I shall save that for another time. Instead, I will share some of the "oracle's" views on gold.
Gold is inherently not very valuable. It does not generate wealth. It is purely a speculative buy. Here's why... when buying gold, one's only hope is that at some point in the future, someone will pay more for it! You are not an investor if you buy gold - you are a speculator. By contrast, if you buy stocks, you are investing in the prospect that the company you buy will actually produce something profitable and grow as a consequence. If you leave a pound of gold in a box somewhere, then in 20 years, it will still just be a pound of gold. But if you buy shares in a decent company... let's use a railroad for example... those shares could spit off yearly dividends while your ownership of the company will increase in a value as the company uses its profits to buy more locomotives, bridges, box cars and more. After 20 years, you will go from being part owner of 1,000 locomotives to being a part owner of perhaps 3,000 locomotives. Your wealth would demonstrably expand.
The other problem with gold is that it has VERY high carrying costs. Likewise do locomotives of course, but at least their use pays those carrying costs, whereas gold does not actually perform any useful task when it is locked up. So, not only does gold NOT multiply itself, but it actually costs money to store it, move it, and keep it secured. Sounds like an expensive asset!
There is no doubt that speculation in something like gold can be profitable if you get on that ride near the beginning, but it is VERY risky... And the latest craze in gold is a true human oddity. People start buying because it's in the news and that is exactly when they should probably be selling it.
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