It’s been stated often that in times of financial uncertainty, investors should seek hard assets such as precious metals or farmland. During a May 7th interview on a popular CNBC show (Warren Buffett on Squawk Box), one of the premier investors of our time weighs in with his thoughts regarding the differences between gold, farmland, and other investments. Below are some selected excerpts from the program that confirms what I have believed for years… over time gold’s hype has often exceeded its returns when compared to other assets.
JOE: … Warren in the past has talked— he’d rather own all the farmland or whatever than gold, but that was throwing down the gauntlet after all the gold bugs. Classic. I love arguing and I love, you know, stirring things up…
BECKY: You had a shareholder who asked you a question about gold over the weekend and your response was pretty interesting – Berkshire vs. gold. You want to talk about how that’s performed over the years?
BUFFETT: Yeah, but we can go beyond that. But— certainly, when we took over Berkshire, Berkshire was selling at $15 a share and gold was selling at $20 an ounce. And then gold is now 1600 and Berkshire’s 120,000. But you can take a broader example of that. If you— if you buy an ounce of gold today and you hold it 100 years, you can go to it every day and you could— you could coo to it and you can caress it and you can fondle it and 100 years from now you’ll have one ounce of gold and it won’t have done anything for you in between.
If you buy 100 acres of farmland, it will produce for you every year. You can use that money to buy more farmland; you can do all kinds of things. For 100 years it’ll produce things for you and you still have 100 acres of farmland at the end of 100 years. You could buy the Dow Jones industrial average for 66 at the start of 1900. Gold was then $20. At the end it was 11,400. But you’d have gotten dividends for 100 years. So a productive asset of any kind, a decent productive asset, is going to kill a nonproductive asset over time. Now, in any given one-year period, five-year period, any asset can outperform another asset…
With land you can get somebody else to do all the work, give them a percentage of the crop, and you can sit back there for a hundred years and get a percentage of the crop and you’ve still got the land when you get all through. I will guarantee you that farmland, over a hundred years, is going to beat gold, and so are— so are equities.
The one advantage that gold has over farmland is that, for the small investor, it’s much easier to purchase, e.g., an investment in a small 40 acre tract in Central IL may now take $400,000 to buy while an investment in an ounce of gold may only cost $1,600. Unfortunately, however, as Buffett points out, that ounce doesn’t earn an annual return during your holding period. Bottom line – you may not totally agree with the “Oracle of Omaha’s” opinion, but he has proven over time to know quite a bit about investing.