Between investing in stocks and speculating, Buffett wrote that “over any extended period of time,” the former “will prove to be the runaway winner.” Try our compound interest calculator to see for yourself!Īnd because the style doesn’t require the investor to try to time volatile markets, “it will be by far the safest” of the options, he wrote. “And what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem.”īecause growth in stock prices is driven by growth in the global economy, Buffett posits, you’re much likelier to produce long-term compounding interest by investing in a diversified portfolio of stocks than you are speculating on gold or crypto prices. “They don’t reproduce, they can’t send you a check, they can’t do anything,” Buffett said of crypto coins in a 2020 CNBC interview. That means that their price doesn’t move based on underlying fundamentals, such as growth in corporate earnings or cash flows, but rather based on what traders are willing to pay for them. Gold and cryptocurrency are speculative assets. In the meantime, Buffett quipped, “you can fondle the cube, but it will not respond.” The case for owning high-quality, productive assets The price of gold could be higher or lower a century from now. Your gold cube, meanwhile, will simply continue to be a gold cube. “Exxon Mobil 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).” “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,” he wrote. If you’re wondering what you’d rather own for the long term, think of what you’d have decades down the line, Buffett suggested. cropland, the entirety of Exxon Mobil (at the time the world’s most profitable company, and a stock that pays a generous dividend) 16 times and still have $1 trillion left over. With that money, Buffett noted, you could have also owned all 400 million acres of U.S. In 2011 prices (not far off today’s value) the brick would be worth $9.6 trillion. “Picture it fitting comfortably into a baseball infield,” he wrote. To get his point across about gold in that shareholder letter, Buffett imagined owning all of the world’s gold - at the time 170,000 metric tons - melded into a cube about 68 feet per side. Investors may recall a famous metaphor employed by Warren Buffett to explain why investing in gold could be unwise.īuffett calls gold an “unproductive” asset, which, as defined in his 2011 letter to shareholders, means “assets that will never produce anything, but that are purchased in the buyer’s hope that someone else - who also knows that these assets will be forever unproductive - will pay more for them in the future.”
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