Berkshire Hathaway 2000 Annual Meeting Audience Question # 38

Warren would rather trust in the “intrinsic value of a bunch of really fine businesses run by good managers” than invest in gold

Warren Buffett:

OK, number 6.

Audience Member:

Good afternoon, Mr. Buffett, Mr. Munger. Kathleen Lane from New York.

I have a question out of left field for you. You say you like to be entertained? This question will entertain you. It’s also a serious question.

I know you don’t like to speculate about the future. You won’t do so. I appreciate that.

But some people do. For example, Edgar Cayce was one. He didn’t pick stocks or investments. But if he had, he would’ve probably gone for that farmland that you were talking about earlier this morning.

Because he had a dream that in the year 2158, Omaha would be located on the west coast of the United States. And you know how beachfront property goes. So it would be a good bet.

Warren Buffett:

It will be good for our super catastrophe business, if that happens.

Audience Member:

As you both said earlier, we’re living in an extraordinary time, financially especially.

You can’t help but to hear disaster scenarios concerning the impending collapse of worldwide financial markets, about major physical changes in the world as we know it, about a future when the world’s resources will be better measured by their prospects for ensuring our basic survival than their value as speculative commodities. That’s where that farmland would come in again.

Nobody does better what you two do. But even if your investment acumen wasn’t what it is, I would invest with you, because you’re honest.

In short, I came here to ask you, what would you tell a single mother to exchange her Berkshire share hold for gold coins? When, under what circumstances?

Warren Buffett:

Well, I can’t imagine ever exchanging any of my shares for gold coins. But…

I would rather trust in the intrinsic value of a bunch of really fine businesses run by good managers selling products that people like to buy and have liked to buy for a long time, and then exchanging their future efforts, the money that comes from their wages, for See’s Candy or Coca-Cola or whatever, than take some piece of metal that people dig out of the ground in South Africa and then put back in the ground at Fort Knox, you know, after transporting it and insuring it and everything else.

I’ve never been able to get real excited about gold. Now, my dad was a huge enthusiast for a gold standard. So I grew up in a family where gold was revered, if not possessed. And I would… I gave it its full chance.

But I’ve never understood what the intrinsic value of gold is. And, you know, we’ll sell you some at Borsheims, but I would never exchange…

The idea of exchanging a producing asset for a nonproducing asset would be pretty foreign to me.

Warren Buffett:

And I would say this: in terms of the predictions, and I know the spirit in which you asked the question, but in terms… there’s a market out there all the time.

And people love to hear predictions. If I said I was going to offer a bunch of predictions today, we would have a million people here. I mean, they’re dying to have predictions and speeches at rotary clubs or trade associations or whatever. That’s… they just plain love it.

And that’s what a whole industry is built upon, you know, the people coming out of Washington to talk about political predictions and the… I don’t read those in the paper at all. Because it’s just… it’s space fillers, basically.

And, you mentioned Edgar Cayce. Ben Graham knew Edgar Cayce pretty well. But I just have never seen any utility to any of that at all.

There will be some huge surprises in the world. There’s no question about that. But I don’t think that betting on any specific one is a very smart policy.

In fact, our… we usually bet against them, in terms of super catastrophes. We know there will be a 7.0 or greater quake in California in the next 50 years. We don’t know where it’ll be or when it’ll be or anything like that. We are willing to pay out a lot of money if it happens tomorrow.

And because people do worry about catastrophes. And in this case, it’s perfectly proper, with insured values. But it just isn’t any way, in our view, to get through economic life.

Charlie?

Charlie Munger:

Well, I suppose the one time when a single mother might want to own gold compared to anything else is if she faced conditions like a Jew in Vienna in 1939, or…

I mean, there are conditions you can imagine where some form of transportable wealth would be useful, compared to anything else.

But absent those extreme conditions, I think it’s for the birds. Now, silver…

Warren Buffett:

It’s hard to think of anything other than fleeing the country. And Charlie and I don’t give a lot of thought to fleeing the country.

Although, I must say that the one thing I really find reprehensible is the people that make a lot of money in this country and then leave to, you know, to get another tax jurisdiction or something like this. I really… I don’t…

But I’m a little crazy. I don’t mind paying taxes.

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