The Golden Rule
By Twickenham Advisors on June 30, 2017
[…]civilized people don’t buy gold. – Charlie Munger
You are told to buy gold to protect yourself against some very low-probability events like hyper-inflation, World War III (or Z), or maybe Godzilla and King Kong come to tag-team the U.S. Aside from being physically impossible for a creature the size of Kong or Godzilla to exist on the dry land of our earth (their bones would crumble under their own weight), I don’t have space on this blog to go further into the probabilities of these events happening. However, I do want to have a word with you about the utility of gold.
For starters, gold will most likely never be widely used as money again. Gold has been the chosen material for currency for much of world history. Historically, horseback riding has been the chosen mode of transportation. Human sacrificing was a method for communicating with the gods. Engraving in stone was the chosen method of writing. These are all hobbies now….except for human sacrificing, I hope. I wonder if there are any horseman that think, “When an EMP bomb is dropped, you’re going to wish you had a horse to ride.”
Gold is too difficult to store/protect, too easy to steal, its value too volatile, and too heavy to carry around town. It is becoming difficult to divide into useful parts. How is the soon-to-be-replaced cashier behind the counter at Starbucks going to give you change if you pay with a 1-ounce gold coin (worth $1200 or something like that)? I had a chuckle watching the movie John Wick 2. Everything that Keanu Reeves bought cost him one gold coin. What!? The rest of the movie – completely realistic.
Secondly, gold will never pay you one dividend or one penny of interest. As Warren Buffett said, “[…]if you own one ounce of gold for an eternity, you will still own one ounce at its end.” However, the price of gold can go up over time. Over the last 25 years, it has gone up 2.98% per year, adjusting for inflation. But how is this price set? There are no earnings to apply a multiple. You can speculate all you want on how much another will pay for your gold, and while you may be right, you can say that about any rock. I would rather invest in good businesses that pay me dividends and interest, and then compound that interest into other productive businesses.
With all that said, I do like gold. Might gold coins be of use in a catastrophic situation? I don’t know. Maybe I’ll keep some in my secret vault just in case, but I doubt it will be of much use investing for retirement.
