Gold vs Productive assets

 

Buffett always prefers productive assets over gold investment. Productive assets include farmland, rental houses, high quality businesses. The long term return of productive assets always beats the  return of gold. In 1936, one share of Birkshire stock was $20 and an ounce of gold was $20. Now one ounce of gold is $1800, but one share of Birkshire stock is $122000. For productive assets, you can reinvest the dividend and the cash flow they produce. The landlords can buy more rental houses with the cash flows of current rental houses they own. For gold, it costs you for storage and security. 

This is Buffett's own words;

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers — whether jewelry and industrial users, frightened individuals, or speculators — must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops — and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.”

 

所有跟帖： 

• very good, thanks for sharing.. -jy101- ♂ (35 bytes) () 05/07/2012 postreply 09:37:53

• in another word, compounding! -滚雪球- ♀ (87 bytes) () 05/07/2012 postreply 09:52:52

• in another word, compounding cash flow! -jy101- ♂ (0 bytes) () 05/07/2012 postreply 09:57:29

• Buffett is smart, but -halfdummy- ♂ (181 bytes) () 05/07/2012 postreply 10:29:24