Tags: Buffett | Immunity | Gold

Buffett’s Immunity to Gold Bug Baffles State Street’s Goolgasian

Monday, 05 March 2012 07:16 AM

Warren Buffett is a great investor, says Christopher Goolgasian, a portfolio manager at State Street Global Advisors Inc. who helps oversee a $74 billion gold fund. The Oracle of Omaha just has it wrong when it comes to the metal.

“While he won’t own gold, he also never owned Apple (up around 1,500% since January of 2000) or Google (up 530% since August of 2004),” Goolgasian said of Buffett in a March 2 regulatory filing for SPDR Gold Trust, an exchange-traded fund managed by Boston-based State Street Corp.

In the filing, Goolgasian wrote that while Buffett’s Berkshire Hathaway Inc. has risen 105 percent since January of 2000, gold has climbed nearly fivefold during the same period.

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Buffett, in his annual letter to shareholders last month, said investors should avoid gold because its uses are limited and it doesn’t have the potential of farmland or companies to produce new wealth. Achieving a long-term gain on the metal requires an “expanding pool of buyers” who believe the group will increase further, he said.

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” Buffett wrote in the letter, posted Feb. 25 on the company’s website. “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As bandwagon investors join any party, they create their own truth -- for a while.”

In his letter, Buffett estimated the world’s stock of gold if melded together would form a cube of about 68 feet per side and, when valued at $1,750 an ounce, amount to about $9.6 trillion.

‘Fondle the Cube’

For the same amount of money, an investor could acquire all the cropland in the U.S. and buy Exxon Mobil Corp. 16 times, while still having $1 trillion left over, Buffett wrote.

“You can fondle the cube, but it will not respond,” he said.

Gold futures for April delivery settled at $1,709.80 an ounce March 2 on the Comex in New York.

Buffett, 81, built Omaha, Nebraska-based Berkshire from a failing textile maker into a firm selling insurance, energy, and jewelry through acquisitions and stock picks. The company has a market value of $194 billion, according to data compiled by Bloomberg.

In his note, Goolgasian, called Buffett “the greatest investor of our time.” Still, that didn’t stop him from questioning Buffett’s take on gold.

“It strikes us that Buffett believes that only asset classes and investments that fit his specific investment beliefs can be sensible investments,” Goolgasian wrote. “We, however, are agnostic about how to beat the market. We just want to do it.”

Buffett didn’t immediately return an e-mail sent to his assistant, Carrie Kizer, requesting a comment on State Street’s filing.

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Monday, 05 March 2012 07:16 AM
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