17 AUGUST 2020

After years of trashing gold for not being a business, having no yield and being an unproductive asset, Warren Buffett has finally bought gold.

Technically, Berkshire Hathaway (BRK-B) bought Barrick Gold (GOLD, ABX.T), which is a gold mining business that pays a dividend. Berkshire also cut its holdings in Wells Fargo and JPMorgan and dumped Goldman Sachs; all bank stocks. These transactions only reflected what Berkshire did in Q2 2020. It would not surprise me if Buffett added more gold and silver to Berkshire’s portfolio since the most recent 13F. In spirit of Buffett’s pro-America investing bias, I think Newmont is a welcome addition to his portfolio.

Though Barrick Gold only represents 0.3% of Berkshire’s holdings, the significance of Buffett’s buy is in the lesson and message he’s sending.

The lesson

There’s a well-known saying among Warren Buffett supporters and critics: “Do what he does, not what he says.”

Buffett has always been a sugar-coater. While I don’t think he’s purposefully lying, he certainly isn’t “telling it how it is” like his partner Charlie Munger. You can search “Warren Buffett hypocrite” and find multiple articles pointing out where Buffett is inconsistent. To be fair, some of it could be chalked up to Buffett becoming too big for his early value investing style.

Warren Buffett vs Charlie Munger Speaking

The sugar-coater vs the one-liner

Nevertheless, if there was one example of Buffett changing face, it’s him buying Barrick Gold.

Buffett has criticised gold for many decades. Although, I don’t think anyone is really sure how serious he was about his criticisms.

While bashing gold on the media, Buffett has written an article scrutinizing US monetary policy and even bought silver back in 1997.

The lesson here is to not religiously follow or invest based on what Buffett says (especially when he’s on TV/mainstream media). If you’re going to invest like Buffett, you need to do as he does, not what he says.

The message

Buffett buying gold is arguably the most dramatic fact turn in recent investing history. The only thing more dramatic would be Buffett buying Bitcoin.

The only reason Berkshire would disclose a position in the gold market is if Buffett was bullish on gold. More specifically, he’s bullish on gold over any other investment opportunity. Buffett could’ve bought anything else or increased his current holdings, but he chose to buy Barrick instead. 

So why would Buffett be bullish on gold?

Buffett understands that the US is going to print money and devalue the dollar like never before. He understands that Trump, with his election on the line, is going to instruct the Fed to create money out of thin air to provide “economic stimulus”, bailouts and family “aid”. And anything Trump does, the Democrats are going to do 100 times more.

Bernie Sanders Trillionare Inflation Meme

Since Buffett doesn’t see any attractive businesses at undervalued prices, the only thing he can do is preserve the wealth he has now until an opportunity comes.

But with Berkshire sitting on over $130 billion and inflation running rampant, it’s like holding a burning match. As Ray Dalio said, “Cash is trash” and Buffett is holding a lot of it.

Hear see speak no inflation cartoon

Luckily, gold is a form of money that can preserve value better than any other currency out there. The only rational thing for Buffett to do to preserve his wealth is to convert it into gold, which is exactly what he did (sort of).

By buying Barrick, Buffett owns the gold in Barick’s inventory, the gold in their mines and the other precious and industrial metals they own. At the same time, he is receiving a dividend. In one swoop, Buffett has protected himself from inflation, bet against the US and acquired a business in the most unloved sector of the equity market.

Buffett is sending us a message and we should all pay attention.

If you are a Buffett disciple, anti-inflation and long United States, your God just turned on you.

Act accordingly.

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