THIS IS ALL YOU NEED TO KNOW IN INVESTING

There are three major categories of investment.

1. CURRENCY DENOMINATED ASSETS
It could be bonds, it could be deposits in a bank, it can be a money market fund, it can be cash in your pocket.

Currency-related investments, we do not think make much sense.

2. NONPRODUCTIVE ASSETS
The second category of investments regard items that you buy that don’t produce anything but that you hope someone will pay you more for later on. And the classic case of that is gold.

You’re hoping that somebody else a year from now, or five years from now, will pay you more to own something that, again, can’t do anything

If you take all of the gold in the world it into a cube, it will be a cube that’s about 67 feet on a side.

You could own all the farmland in the United States, and you could own ten Exxon Mobiles and you could stick a trillion or so in your pocket for walking around money, and you could have your choice of that or this 67-foot piece of gold.

3. PRODUCTIVE ASSETS
The third category of asset is something that you value based on what it will produce, what it will deliver. And you decide how much you pay based on how much you think the asset itself will deliver over time. And those are the assets that appeal to me and Charlie.

You can make a rational calculation.

You should not care whether you get a quote on that farm a day later, or a week later, or a month later, or a year later. We feel the same way about businesses.

When we buy ISCAR, or we buy Lubrizol, we don’t run around getting a quote on it every week and say, you know, “Is it up or down or anything like that?” We look to the business.

We feel the same way about securities. When we buy a marketable security, we don’t care if the stock exchange closes for a few years.

We are looking at what we think can be delivered from the productive assets that we own, and how we can utilize that capital in acquiring more productive assets.

I would bet on good-producing businesses to outperform something that doesn’t do anything over any period of time.

A business or any economic asset is going to be worth what it produces in the way of cash over its lifetime.

But all investment is, is laying out some money now to get more money back in the future. Now, there’s two ways of looking at the getting the money back. One is from what the asset itself will produce. That’s investment.
One is from what somebody else will pay you for it later on, irrespective of what the asset produces, and I call that speculation.

We’re not enthused about gold.
People, historically, have felt that was the first refuge from a currency that was going to be — decline in value.
But, you know, so is a barrel of oil. So is an acre of land. So is a piece of Coca-Cola. So is See’s Candy.

If the dollar goes down 50 percent, we will be selling See’s candy for double the present price.

Gold would be way down on my list as a store of value

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

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.

I see no reason, you know, why it would work well in the future.

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.

But the one thing I would bet my life on, essentially, is over a 50-year period, not only will Berkshire do considerably better than gold, but common stocks as a group will do better than gold, and probably farmland will do better than gold.

I mean, if you own an ounce of gold now and, you know, you caress it for the next hundred years, you’ll have an ounce of gold a hundred years from now.

If you own a hundred acres of farmland, you’ll also have a hundred acres of farmland a hundred years from now and you’ll have taken the crops for a hundred years and sold them and presumably bought more farmland in the process.

It’s very hard for an unproductive investment to beat productive investments over any long period of time, and I recognize that —

If you’d bought gold at the time of Christ and you figured the compound rate on it, you know, it may be a couple tenths of 1 percent.

That anytime you buy a nonproductive asset you are counting on somebody else later on to buy a nonproductive asset because they think they can sell it to somebody for more money.

And it’s been tried with tulips and it’s been tried. It does come to a bad ending.

In the end you make your money on productive assets

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