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Nice work.
Let me start by saying that Buffet is a great investor. As John Hempton said he is dangerous because he makes people think that what he is doing is very easy. Other than that he’s media savvy and people always talk about what he said but not what he’s doing.
He invested in bonds & distressed debt where the upside is mostly capped and if you go back and read his investment letters from 70’s he said that equities are not panacea during inflationary periods as he bemoans them losing value, as he is doing now with commodities and bonds.
As for your point gold has value ( as it is seen as a store of value due to convention) Here is a little history as how things have changed and how gold and silver worked out. Gold and silver almost had same value but in last 500 years silver has much less value than gold just due to new reserves found in the new world. So not sure that in 500 yrs hence it will work or not.
http://www.sharelynx.com/chartsfixed/600yearsilver.gif
http://www.sscnet.ucla.edu/classes/cluster22/fall01/lectures/l11/sld013.htm
Warren buffet happened to operate in an extraordinary period in world history and in the best country of that time. Look at history in the last 100 years some extremely good & wealthy investors who owned real assets like land and equities in countries like Germany, France & Spain before 1940 & Russia in 1900’s or for that matter even in countries like Argentina in 1930’s ( which by the way was a very prosperous nation and some Americans migrated there during the 1920’s & 1930’s for better opportunities. Or for that matter the original share holders of Jordan Fleming,HSBC even though they went to become great companies and made their investors rich their original shareholders lost money due to government and political aspects. Share are but paper claims of assets which are bound by the rules & laws of the country and can be changed at the whims and fancies of the governing elite. ( That’s where i think gold comes in handy as people can hide is use it discretely e.t.c)
I agree with his point that owning productive assets is best ( but not under all conditions), as margin of safety and for survival gold and other precious metals, ornaments, real estate are much better alternatives. He has not considered the other side of the debate which is deflation and during those circumstances Bonds offer the best returns with the least risk and equities bear more risk that return in general.
It’s not true that gold is guaranteed to have value 500 years from now. It’s speculation as we don’t know if society will continue to value gold. There are other scarce minerals that are not used as a reserve currency and are not valued as highly, perhaps they will come to dominate? Or perhaps an extremely cheap method of mining gold will be found. Or perhaps the government will confiscate all gold (has happened in the past), meaning that it’s value will be zero.
I would say that the the asset most likely to still have value is Land, however this still has the potential of losing value for example if there is erosion of property rights.
@Rob
All currencies are social inventions and surely social norms can change but Gold has survived the test of time for the last thousands of years and is the best bet as a long term store of value. Land can’t really act as currency since its immobile (and can’t be chopped in pieces). Even if govt confiscates gold it doesn’t loose value, the fact that it is confiscating it means it has LOT of value. A state with such regressive laws will not last for long or the laws will need to change. So temporary security climates can change but gold’s status as store of value doesn’t.
That doesn’t mean I invest in gold though. I still believe investing or creating businesses is better. If I would like to transfer anything to future generations it will be the skill and knowledge to create wealth rather than anything else. Money will quickly leave folks without the wisdom to handle and nurture it to those who have it. But that doesn’t mean one can dismiss the whole asset class of gold.