Saturday, April 23, 2011

Why Warren Buffett hates to Invest in Gold

LONDON (Commodity Online): Every investor in the world is obsessed with gold these days. For the last one decade, gold has emerged as the best performing asset, be it for legendary commodities investors like Jim Rogers or for humble households in India that keep invested by buying gold.

But is everyone lured by gold? No, not everyone. One person who has not been passionate about investing in gold--but has been investing in most other stocks--is the world's most erudite investor Warren Buffett. Buffett is not enarmoured to investing in gold. He has not invested in gold. And he is not obsessed with gold. In fact, he hates to invest in gold, even as the yellow metal price is surging to high price.

Why is Warren Buffett not interested in investing in gold, the hottest commodity in the world? Here is an interesting article by David Pett of Read and enjoy:

"Warren Buffett’s latest filing should provide food for thought, especially for gold bugs. The filing, made public Monday, shows the stocks held by Buffett’s company, Berkshire Hathaway Inc., at the end of September. It indicates that the world’s greatest investor isn’t loading up on gold or precious metals. Indeed, he lists no mining companies among his holdings. 

Buffett doesn’t necessarily hate commodities—the filing shows he’s bought into Exxon Mobil Corp., the oil and gas producer, and continues to hold shares in ConocoPhillips, another energy company. But he doesn’t appear to be a fan of gold at all. 

The omission of gold is telling, because, in many ways, the yellow stuff would seem to fit with Buffett’s worldview. He has frequently spoken of his belief that inflation will rise in years to come as governments try to deal with large and rising amounts of debt. Gold would seem to be a natural refuge. 

But Buffett appears to have his own strategy for dealing with inflation. In addition to his purchases of Exxon stock and his massive new investment in the railroad company Burlington Northern Santa Fe Corp., he has doubled his investment in Wal-mart Stores Inc. and bought shares in Nestle S.A. He continues, of course, to hold major stakes in financial services firms such as American Express Co. and consumer products companies like Coca-Cola Co. 

His theory seems to be that the best protection against inflation comes by investing in companies that have the ability to pass on price increases. A company can have pricing power if it controls a scarce resource (Exxon and Burlington Northern) or if it owns a favored brand (Nestle and Coca-Cola) or because it’s the biggest and most effective competitor in its field (Wal-mart). All those companies occupy large places in Berkshire’s investment portfolio. 

But no gold miners."

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