I can understand why Warren Buffet doesn’t invest in gold and silver.

March 24, 2011 – I can understand why Warren Buffet doesn’t invest in gold and silver. If you had a billion dollars and lost 90% of it, you could probably find a way to muddle through on the $100 million you had left. And a strategy of buying the cheapest assets with the highest income potential, regardless of whether the dividends were funded by toxic loans, might better suit your investment goals. But the average retail investor is looking for something different.

So why sit glued to the tube to glean every tidbit of wisdom Mr. Buffet reveals whenever he appears on CNBC? For one thing, if your portfolio is diverse you might get some good advice about stock holdings. The danger is in correlating speculation with risk.

Mr. Buffet’s distaste for gold and silver investment stems from his strategy, and is not entirely due to his aversion to any asset that doesn’t produce income. After all, he isn’t very fond of fixed rate debt instruments either. Instead, Buffet requires high liquidity so he can take advantage every opportunity to achieve even a slight increase in returns. That means taking short positions in commodities, which is what he is talking about when he labels gold and silver investment as speculation.

Investing for long-term wealth growth and security is an entirely different story, and investments in gold and silver following long-term trends have no equal to that end. And when you compare them to Berkshire Hathaway shares, the performance of gold and silver might surprise you.

Assume you invest $1,000 each year and plow back your earnings. While most investments tanked between 2008 and 2010 Berkshire Hathaway boasts an annualized return of 11%. Gold, however, returned 23% and silver a whopping 46%. And from 2001 to 2010 the returns were 9.9%, 18.6%, and 25.3% respectively.

That is the true picture of gold and silver investments.

Shannon King

Senior Staff Writer –

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