Warren Buffett traded Goldman Sachs for gold(fortune.com)
fortune.com
Warren Buffett traded Goldman Sachs for gold
https://fortune.com/2020/08/14/warren-buffett-goldman-sachs-gold-berkshire-hathaway-portfolio-occidental-stock-wells-fargo-jp-morgan-kroger/
42 comments
Buffet was commenting on the social absurdity of the situation, but that has little bearing on his investment strategies. Money is money, and I'm sure Buffet has similar contempt for quite a few industries he's invested in.
A very forgiving description for what is just plain hypocrisy.
If I think that fidget spinners are a stupid trend, but I know a guy who will buy 100 boxes from me, I'm going to make that transaction. There is nothing hypocritical about this. I can happily take money from people while holding them in contempt. Don't you do this at your own job when you get a paycheck from your boss?
Yeah, he's actively betting on people making poor choices in times of panic, not on Gold. Gold is merely the medium. It's not hypocritical at all.
That's not hypocrisy.
Yeah it’s called “shifting the portfolio” and seems a reasonable thing to do for the worlds best fundamental investor in this time of unlimited printing.
I don't think that quote makes this move surprising
Not sure I count that as a surprise--in one breath I'll talk about how C is a terrible language, and in another breath I'll talk about my latest project which I'm writing in C.
He would probably have an equally or more estranged view of goldman sachs.
I think thats a reflection on his thoughts on Goldman Sachs more than anything
He has investment managers who can make independent decisions. Selling out of GS is obviously his move. Buying a gold miner? We can't be sure.
There’s also a difference between buying gold and investing in a gold miner: the former is purely speculative while the latter can provide a stream of income.
There's not much utility to many things in daily life if you scrap it to its base components.
It reminds me of the story of how Steve Jobs got John Sculley, then CEO of Pepsi, to join Apple: “Do you want to sell sugar water for the rest of your life or come with me and change the world?”
It reminds me of the story of how Steve Jobs got John Sculley, then CEO of Pepsi, to join Apple: “Do you want to sell sugar water for the rest of your life or come with me and change the world?”
not surprising at all. His goal is to make money (legally) so if people drive the price of gold up, he will profit if possible. Very simple.
He will also sell if he thinks it no longer makes investment sense.
He will also sell if he thinks it no longer makes investment sense.
Well he didn't buy gold, he bought shares in a company whose main business is gold mining.
This reminds me of that "sells shovels" way of becoming a millionaire
The headline hides the fact he’s not buying gold, but rather a gold mining company.
Yes, the stock tracks the prices of gold, but the stock beat gold by 45% so far this year.
It sounds like buffet is investing in a mining business not actual gold (albeit they are linked somewhat).
Yes, the stock tracks the prices of gold, but the stock beat gold by 45% so far this year.
It sounds like buffet is investing in a mining business not actual gold (albeit they are linked somewhat).
Equity in a gold mining company is a leveraged play on gold: since the company has debt, the equity will react more than the price of gold (on both the upside and the downside) with a floor at 0. So he's purchased a call option on gold.
The gold mining company can generate future incoming cashflows, gold doesn't.
The equity in the gold company is a call on the gold in the ground: the cash flows of the company come from extracting this gold. Getting a bit more detailed, the leverage comes from 2 elements: (a) operating leverage i.e. company generates more revenue with same fixed operating costs and (b) financial leverage i.e. company generates more net operating income with same fixed interest costs. The basic point is that the cash flows all come from extracting gold, so the equity is a derivative on this underlying.
I see no problem here. He is buying a gold miner, so he is buying a business profiting off this weird desire for gold. You could basically say the same about chocolate: "People pay money to buy what is basically compressed sugar to then die from diabetes" (little exaggerated). Doesn't mean it's not profitable to own chocolate companies (as Buffett does)
There must be something coming to our economy soon if he is willing to bet so much on gold.
Gold is currently at all time high so he may alrady have won on it.
Or something is coming to Goldman Sachs.
With zero-interest rates and quantitative easing, there is no need for countries to borrow money because they can start printing it. At the same time, China controls more and more business processes which leaves less to companies that operate within Goldman Sachs' merger and acquisition world.
Taken even further, market economies could come to an end because they cannot exist in a world where China can be a loss-leader in every strategically important market. If China is poaching TSMC's engineers [1], what does stop them from doing that to all relevant production processes? Either TSMC and all the other companies need artificial profits to pay more to their engineers or there need to be other barriers. Either way, the importance of markets could decline and so could Goldman Sachs.
[1] https://news.ycombinator.com/item?id=24129861
With zero-interest rates and quantitative easing, there is no need for countries to borrow money because they can start printing it. At the same time, China controls more and more business processes which leaves less to companies that operate within Goldman Sachs' merger and acquisition world.
Taken even further, market economies could come to an end because they cannot exist in a world where China can be a loss-leader in every strategically important market. If China is poaching TSMC's engineers [1], what does stop them from doing that to all relevant production processes? Either TSMC and all the other companies need artificial profits to pay more to their engineers or there need to be other barriers. Either way, the importance of markets could decline and so could Goldman Sachs.
[1] https://news.ycombinator.com/item?id=24129861
> market economies could come to an end because they cannot exist in a world where China can be a loss-leader in every strategically important market.
This.
Already happened with rare earth processing and pharma.
This.
Already happened with rare earth processing and pharma.
I constantly hear Robinhood type traders (errr, I mean investors) saying a wave of inflation is coming. While true that an inflationary environment is good for gold, I am not sold on massive inflation coming. Also does not help that gold is at all time highs. I sold out of my position of Barrack about two months ago; perhaps I was a bit early, but I'll take the profits.
Inflation wave started in 2008 when the housing market crashed and QE really began.
Looks more like a hedge to me, but I think you are right. It's a signal. Most people will confuse this with noise, ignore it, and move on.
Even if it's not a big deal considering the overall Berkshire investment pool, this is a considerable divergence from their strategy so far. Very telling.
Even if it's not a big deal considering the overall Berkshire investment pool, this is a considerable divergence from their strategy so far. Very telling.
Berkshire's public equity holdings are worth about $215bn. The Barrick position represents about 0.25% of that. It really isn't a big deal.
Aside from Buffett, Todd Combs and Ted Weschler each have about $10bn to invest - it is entirely possible that they made this investment without consulting Buffett (they don't have to ask for permission). In the past they've also bought Amazon - another non-Buffett pick.
Aside from Buffett, Todd Combs and Ted Weschler each have about $10bn to invest - it is entirely possible that they made this investment without consulting Buffett (they don't have to ask for permission). In the past they've also bought Amazon - another non-Buffett pick.
He's not buying actual gold; he's buying into a gold mining company.
Buffett spent the last six months panic selling. "Be fearful when others are fearful" is his new motto. He doesn't have the same political connections he had during the GFC to get in on the sweet government-backed bailout deals this time around.
Not connections, this time the FED bailed out companies. Last time they had no government cash or was very scarce so they had to call the one person with a purse. And Buffet made the rules, accordingly to the power he held over the borrowers.
Moving less than 5% of one's portfolio can hardly be considered panic selling. The long equity exposure is over $215bn.
Dollar delta changes as stock rallies. If you want to maintain a fixed dollar exposure, you can trim your position when stocks rally and add to your position when they depreciate.
For a gold miner* misleading title
the ticket symbol of barrick is GOLD
Caterpillar is CAT, but you don't see headlines that say "Blackrock traded Microsoft for cat."
Clarification for anyone going off the title. He bought stock in a gold mining company. Not gold itself.
I find the title to be a bit disingenous.
I find the title to be a bit disingenous.
I suspect that gold is a very common metal throughout the inner solar system, and the asteroid belt. It’s only valuable now, because of its rarity on earth.
But once we can mine the lower gravity of Mars, then someone might dig up a gold mine.
And Venus I would suspect has a lot of gold. If we can slow it’s runaway global warming, then we might be able to establish a colony there, and mine gold.
The same concept goes for Mercury.
I’m surprised that the Moon hasn’t revealed trace elements of gold yet. I suspect that it might be buried deep inside the core, where it sunk, while the moon was still molten and forming. If someone can find a gold mine deposit there, then they can build a mass driver to launch it on a return trip back to earth. Or just use it to build new spacecraft in outer space.
But once we can mine the lower gravity of Mars, then someone might dig up a gold mine.
And Venus I would suspect has a lot of gold. If we can slow it’s runaway global warming, then we might be able to establish a colony there, and mine gold.
The same concept goes for Mercury.
I’m surprised that the Moon hasn’t revealed trace elements of gold yet. I suspect that it might be buried deep inside the core, where it sunk, while the moon was still molten and forming. If someone can find a gold mine deposit there, then they can build a mass driver to launch it on a return trip back to earth. Or just use it to build new spacecraft in outer space.
"Gold gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
[1] https://quoteinvestigator.com/2013/05/25/bury-gold/