Buffett has been wrong on many counts

Aug 23, 2011

Dublin, Ireland

We got the news yesterday. Gold went over $1,900. This morning we find it soared $39 yesterday.


Has making money ever been easier? We bought gold at around $300 at the turn of the century. Now, it's 6 times as much. And if Ben Bernanke announces another money-printing spree gold will probably close the week over $2,000.

Getting rich is a piece of cake.

All we had to do was to sit tight...and ignore all the people who claimed that gold was an overpriced bubble. Or that it was worthless. Or that we were idiots.

People like Warren Buffett, for example. Buffett says that buying gold is a waste of time. He prefers stocks. His Berkshire Hathaway produced a return of 76% from 2000 to 2010. Not bad at all.

But nothing like the 500%+ from gold. And BRK went up and down; it had good years and bad years. Gold only went up; only good years.

Probably the best thing about gold is that you didn't have to go to Omaha to attend Warren's annual meeting.

We were very sympathetic to Buffett for a very long time. He rarely said anything we didn't agree with. But now he seems to misunderstand completely what is going on. He is telling investors to buy stocks now, because nothing beats quality US stocks over the long run.

He also tells investors to avoid gold, because it doesn't produce anything. It doesn't make candy or sell insurance, for example.

He's telling everyone that the US should raise taxes on the rich. And he says US bonds should be up-graded, not downgraded. There just aren't enough As in the alphabet to describe the quality of US debt, says the Sage of the Plains.

Wrong, wrong, wrong.

He's wrong about US stocks. Yes, if you buy them when they are cheap...and if the US is in a boom period...you can make some money. But how about now? The US economy is in a period of correction...and debt de-leveraging. US stocks probably won't go up for years.

What's more, US stocks still aren't cheap. They'll have to go down another 30% to 50% before they are bargains. Most likely, they'll get sawed in half before the bottom comes.

He's wrong about taxes on the rich too. Raise the taxes on the rich all you want. There just aren't enough rich people to make much of a difference. Allowing people to think they can get out of the debt trap just by soaking the rich is a dangerous illusion. You might want to soak the rich just for the fun of it, but it's not a serious way to solve the debt problem.

-------------------------------- Urgent Update On The Global Crisis --------------------------------

Is the current Global crisis really an opportunity you can profit from?

To get an answer to this question and more, join us for the latest edition of the Equitymaster WebSummit!

Our guest will be Ajit Dayal, Director, Quantum Asset Management Company.

Claim Your Free Pass Now! Click here!


As for gold, Buffett has been wrong about that too. Gold is not something you buy to make money. It's something you buy so you won't lose money. You buy it when you see the feds' crackpot financial system coming apart. That's what's been happening for the last 10 years. The fixes don't stay fixed. And gold goes higher.

But what now?

Hmm....now, it's a little harder for us gold bugs. We want to say "buy gold," but we know that the risk-free profits have already been made. Now, it's more of a gamble.

On the one hand, the feds are ready, willing and able to print more money - which is sure to send gold much, much higher.

On the other hand, this correction has much further to go too. And a correction is fundamentally deflationary. Cash - even dollar cash - should become more valuable. Do people need gold when their government-issue currency is becoming stronger? Well...it depends....

Already, a dollar will buy nearly twice as much house, in some areas, as it did 4 years ago.

It will buy more stocks too - US stocks are down about 15% from the peak, equivalent to a 15% price reduction.

Gasoline? Not yet. But the price of a barrel of oil has dropped nearly $20 over the last 4 weeks. If this keeps up, it will be cheaper to fill your tank too.

Commodities have taken a big hit too - so look for lower food prices.

And what about gadgets from China? They'll go down too...as fewer and fewer people have the money to buy them.

And yet, the price of gold is still going up even faster than dollars...zooming up...soaring up...blasting up...

Has the long-awaited Third Stage of this bull market in gold finally arrived? Maybe...stay tuned.

*** Our old friend Rick Rule has hooked up with Eric Sprott in Canada. Together, what they don't know about investing in mining, energy and resources probably isn't worth knowing. Check out their website - www.sprott.com

We've asked permission to publish one of their recent analyses. As you will see, it helps explain where the buying power for gold is coming from... and why the end of this monetary system will bring the biggest financial blow up of all time. Read the analysis here - The Greatest Trade of All Time.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "Buffett has been wrong on many counts". Click here!

2 Responses to "Buffett has been wrong on many counts"


Aug 23, 2011

He also tells investors to avoid gold, because it doesn't produce anything. It doesn't make candy or sell insurance, for example.
Dear Sir, the above is 100% true, if you go on buy gold and there is less edible and facilitating material production, what would fetch the lovely gold, can eat it or travel on it to reach Moon! Presently its been used to cheat and gain , other wise only real production can bring a Glory to a country or an
individual.Gold has been used by Zombies to scratch and loot the unknown common man.


girish shah

Aug 23, 2011

if buffet was that smart he would have bought tech shares -and other companies from the nineties.IN recent times he would have betted billions on google---but no --he is just a big fat old face of the stockmarket to market the stocks and fool people into being invested in stocks
his opinion on gold says it all ---in comparison mark mobius is the worlds no 1 investor who always is studying and keeping his brain alert

Equitymaster requests your view! Post a comment on "Buffett has been wrong on many counts". Click here!