Yesterday in an interview on CNBC, Warren Buffett reiterated his unfavorable view on gold. His view, which was outlined in this year's annual letter, is that no matter how far out you go, one ounce of gold today will always be an ounce of gold. He goes on to say that "you can fondle the cube, but it will not respond."
Buffett certainly has a point. An ounce of gold 12 years ago is still an ounce of gold today. But isn't the same thing true of stock in Berkshire Hathaway (BRK/A)? Given the fact that BRK/A does not pay a dividend, no matter how much a holder 'fondles' or looks at their holdings, one share of BRK/A stock purchased twelve years ago is still one share today. Sure, you can sell it for more now than you bought it then, but the same is true of gold. In fact, your gain on gold is considerably more than your gain would be on BRK/A. Looking at the performance of the two assets since the start of 2000 shows that the value of gold has increased considerably more than the value of Berkshire Hathaway. In fact, with a gain of 466% since the start of 2000, gold's gain has been nearly four times the return of BKR/A (466% vs 120%).
While BRK/A has underperformed gold, it has outperformed the S&P 500 since the start of 2000 (120% vs. 17%). Against individual stocks currently in the index, however, it has merely been in the middle of the pack. Of the 429 current members of the S&P 500 that were trading in 2000, 187 (44%) have seen greater price appreciation than BRK/A, and that is before taking dividends into account. Of those 187 stocks, 22 have actually seen gains of more than 1,000% since the start of 2000.
The fact that BRK/A has underperformed gold and so many other individual stocks over the last twelve years does not take away from the fact that Warren Buffett has one of the best investment track records of anyone alive today. That being said, even the best investors don't outperform all of the time.
Copyright © Bespoke Investment Group
