2005: Is gold a good store of value?

AUDIENCE MEMBER: Good afternoon. My name is Mike McGowan (PH) and I’m from Pasadena, California.

I had a pretty good question on Prop 13, but after watching the movie I don’t think I’ll ask it.

WARREN BUFFETT: Good. (Laughter)

AUDIENCE MEMBER: What I’d like to ask about, I guess, is one quibble and then a question. The question being about financial education, or a study of financial history, that might help people in handling these markets or in — just dealing with investing at or near the apex of Western civilization.

When you mentioned your dad’s lectures about “buy gold” back in the 1930s, and then saying, “Well, 60 years later, it hasn’t done very well,” gold was pretty much pegged at a set price back in the ’30s for years and they didn’t really let it loose until 1971.

And then it caught up. And then it’s kind of bounced around. If you looked at gold maybe now, and derivatives and real estate bubbles and lots of other things, maybe gold wouldn’t be such a bad investment, looked at in current terms.

So, my question would be, do you consider that you have some sort of an obligation or duty as financial exemplars to maybe pay a little attention to that classical kind of gold is the benchmark or the bedrock of a financial system, to some extent?

And that it might be nice to talk about it, in your — at least your annual letter to your stockholders — about how people might protect themselves in what’s a fairly bubbleous kind of environment from, really, the decline in purchasing power or problems caused by the financial domination that we have today? Thanks.

WARREN BUFFETT: Yeah. I would say that gold would be way down on my list as a store of value. I mean, I would much prefer owning a hundred acres of land near here in Nebraska, or an apartment house, or an index fund.

Gold, we’ll say, was freed up 30-odd years ago. But it adjusted to a market that still, if you go back to 1900, you know, you were talking $20 gold. Well, you take 20 to 400 in a hundred years.

The Dow went from 60 to, what, 12- or 13,000 — 12,000 or whatever it might have been — in that same period, and paid you dividends during the time you owned it.

It was 66, I think, at the start of the century. And I forget where it ended, but it’s 11- or 12,000. And like I say, it was paying you something every quarter during that period.

And if you owned gold, you paid $20 in 1900 or thereabouts. And then you — we’ll say you had $400 a hundred years later. And in the meantime, you paid insurance and perhaps some storage cost.

It really is not — it’s not a store of value. And it’s — I’m not arguing for paper money, but if you’re worried about paper money —

And I think, you know, it makes a lot of sense to worry about paper money over long periods of time — but it’s just about — you know, it’s just about the last thing I would want to own under those circumstances.

You know, it has — a farm has utility, an apartment house has utility, a business, you know, will produce earnings. And some businesses will produce them in real terms as they go along.

You know, I’d rather have the ability to sell people a pound of candy 20 years from now. And if they’re dealing in seashells, I’ll get an appropriate number of seashells instead of paper money for it.

But I — it — I just don’t — I don’t see gold as a store of value. And it’s — the truth is, it hasn’t worked very well.

But forget about whether it’s worked well the last hundred years or the last 50 years or the last 10 years, I see no reason, you know, why it would work well in the future.

I forget whether we’re turning about three- or four-thousand tons of gold a year. And, you know, we take it out of the ground in South Africa and we put it in the ground at Fort Knox or someplace, you know, or in the New York Fed. I mean, and it doesn’t do much along the way, for anybody.

So, I —

Charlie, how do you feel about gold?

CHARLIE MUNGER: Well, I think gold was — and similar items — that was a great thing to have if you were a well-to-do Jewish family in Vienna in 1935, because you had hazards where that gold had enormous utility to you. But for Berkshire Hathaway sitting here in 2005, it just doesn’t interest us at all.