Warren Buffet is an investing legend.
When he talks, people listen.
Many investors—at least those that don’t blindly buy stock indexes– pay attention to what he is buying and selling hoping to unearth clues about what to do with their own portfolios.
Well, through his most recent purchase Buffet has spoken VERY loudly. (I will tell you what he bought in a minute. Hint: it involves precious metals).
An anonymous poet once wrote:
People come into your life for a reason, a season, or a lifetime.
When you figure out which one it is,
You will know what to do with each person.
The same could be said for investing. Here at All Season, as many of you know, all of our investments— whether it be in individual stocks, stock indexes, or other asset classes— are for a reason or a season. No investment is for a lifetime. At least not with our approach.
It looks as though the same could be said of Warren Buffet.
Let me lay the groundwork for his latest purchase— (drumroll please) …. Barrick Gold (symbol: GOLD)— especially in the context of a reason and a season.
Back in 1998 during a speech at Harvard University, Buffet opined on gold:
“(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.”
Hmmm, that does not sound too complimentary …
Here is a quote from his 2018 Berkshire Hathaway Shareholder Meeting. Let us see if his opinion had changed:
Let’s say you’ve taken $10,000 and you listen to the prophets of doom and gloom around you — and you’ll get that constantly throughout your life. And instead, you use the $10,000 to buy gold. Now, for your $10,000 you would have been able to buy about 300 ounces of gold. And while the businesses were reinvesting in more plants and new inventions came along, you would get down every year and you look in your safe deposit box and you’d have your 300 ounces of gold. And you could look at it and you could fondle it and you could, I mean, whatever you wanted to do with it. But it didn’t produce anything. It was never going to produce anything. And what would you have today? You would have 300 ounces of gold just like you had in March of 1942.
Again, not too flattering …
Now that sounds like a strongly held, “lifetime”, belief- ie. Berkshire will never own gold or shares in a gold company.
Fast forward to 2020.
Berkshire Hathaway buys shares in Barrick Gold (https://www.kitco.com/news/2020-08-14/Warren-Buffett-buys-gold.html).
A complete 180!
The famous economist, John Maynard Keynes, was reported to have said, “When the facts change, I change my mind.” What did Buffet see that changed HIS mind? Without putting words into his mouth he is likely hedging—albeit in a small way—the risk of higher inflation coming from the size of the Fed stimulus this year. Perhaps he sees a disconnect between asset prices and the real economy brought on by said stimulus. Who knows his reasons exactly, but we happen to agree with his purchase (not that he needs our approval …).
Precious metals have played an important part in our All Season model going on two years now. Gold and silver have provided needed diversification and protection against the risk of higher inflation.
This piece is not a “gotcha” piece calling out Buffet for changing his mind. On the contrary. I only point him out to demonstrate that every holding in your portfolio should have a “reason” or a “season”.
Remember: a “lifetime” can be a very long time.
Sean Powers, Managing Director
