It’s tough being Charlie Munger. You make an outlandish statement about gold investors and then a little thing called history comes back to bite you.
Prior to the annual meeting of Berkshire Hathaway, Vice-Chairman Munger was asked in a CNBC interview about the merits of investing in gold. He replied: “I think civilized people don’t buy gold, they invest in productive businesses.”
This wasn’t the first time Munger has lashed out at the yellow metal. In 2010, appearing at the University of Michigan, he stated:
I don’t have the slightest interest in gold. I like working on understanding what works and what doesn’t in human systems. To me that is my…that’s not optional…that’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. I don’t see how you become rational hoarding gold. Even if it works you’re a jerk.
To say this is hypocritical is an understatement. As Charlie Munger insults today’s precious metals investors, he ignores the fact that Berkshire Hathaway once was one. In February 1998, Berkshire owned nearly 130 million ounces of silver for investment purposes. And Munger can’t claim he wasn’t involved, because a Berkshire press release discussing the foray into silver makes his participation clear:
Over 30 years ago, Warren Buffett, CEO of Berkshire Hathaway, made his first purchase of silver in anticipation of the metal’s demonetization by the U.S. Government. Since that time he has followed silver’s fundamentals but no entity he manages has owned it. In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation. Therefore, last summer Mr. Buffett and Mr. Munger, Vice Chairman of Berkshire, concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price.
Munger’s recent CNBC comment implies that buying gold now is uncivilized, but buying silver in 1998 was somehow totally respectable. The logical inconsistency is truly astounding.
More specifically, Munger was clearly taking a swipe at anyone with the gall to diversify away from paper money. Perhaps he had not read the words of a well-known billionaire, who observed in October 2008:
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Of course, the person who wrote the above was none other than Warren Buffett. He was making the case for stocks, not gold, but someone who missed the byline and read Buffet’s thoughts on holding cash could be forgiven for thinking the author was a dedicated gold bug.
It’s important to note that last week’s insult of gold by Munger doesn’t merely reveal hypocrisy. It further illustrates that those who are part of the financial elite often conveniently escape the scrutiny of the press. Munger’s comment that civilized people don’t buy gold went entirely unchallenged by his CNBC interviewer. That same journalist, Becky Quick, also gave him a pass back in 2010 at the University of Michigan when he wholeheartedly endorsed the bank bailouts, of which Berkshire was a significant beneficiary,and then crassly told Main Street to “Suck it in and cope.”
Munger’s musings about gold and the bailout are also a good reminder that while money can buy a lot of things, class is definitely not one of them.