In his annual letter to Berkshire Hathaway shareholders, Buffett said gold investors are motivated by the belief that ‘the ranks of the fearful will grow’. Jim Grant editor of Grant’s Interest Rate Observer disagrees.
In an interview with Bloomberg TV. Grant explained that those who buy gold do so because of the ‘non-zero probability’ that the collective actions of the world’s central banks could spin out of control, something Warren Buffett doesn’t acknowledge.
Grant compared gold’s performance with that of Coca-Cola’s common stock since 1996 (see below) and found that gold has outperformed the stock for a while. And remember, Berkshire Hathaway owns 200 million shares of Coke.
Grant applauded Buffett for investing a company that has improved significantly over the years. But ultimately, returns are returns and gold has crushed coke. Here’s what Grant said:
“It’s humiliating to the people who own [Coca-Cola] common. This is why valuation is so important. This is why price and the margin of safety is so important. In 1996 Coke was whatever 39 times earnings or something and gold was known to be the refuge of not the fearful but of the idiots. And to be sure I don’t fault Mr. Buffett as an investor it would hardly behoove me to do so, but I do observe that over these past not so prosperous dozen or so or more years, the commodities have done better than even the best quality equities.”
Photo: Bloomberg TV
Watch the entire interview at Bloomberg TV: