Today I want to share with you an email from a friend and reader. It has a special Thanksgiving takeaway, to be sure.The email was short and crisp, the note stated, Warren Buffett hates gold. Why do you like it'Lets have a lookYes, Buffett Hates GoldFirst, lets go to the source of the question, the exact words of Mr. Buffett. In a 1998 speech at Harvard, Buffett gave no quarter to the yellow metal. Gold, he stated, gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.Funny, right' If Buffett werent an avuncular, ukulele-playing billionaire, he could be a stand-up comic. Then again, people tend to laugh at rich guys jokes.More recently, in his 2011 annual Berkshire Hathaway letter, Buffett took another sharp wire brush to gold. He called gold an unproductive asset that will never produce anything.Gold, declared Buffett in that same 2011 letter, reflects a buyers hope that someone else will pay more for [it] in the future. Indeed, per Buffett, gold as an asset will remain lifeless forever. Gold prices are held aloft by the belief that others will desire it even more avidly in the future.OK, you get the idea. Buffett doesnt like gold. Then again, hes super rich. Hes neither peasant nor proletariat. Hes far removed from the 99%or 99.999%rest of humanity.Heck, Buffett can afford not to like gold because hes asset rich in so many other ways, as Ill discuss in a moment. Meanwhile, as Buffett trashes gold, he indirectly talks up his own book of assets and endorses his own brand of investing. Not to put too fine a point on things, but Buffett is a rich guy talking monetary smack and behaving badly.Why Do I Like Gold'To answer the readers question right out of the gate, I like gold because its a form of insurancemonetary insurance, of sorts. When (not if) something bad happens to our nations currency, I want to own gold. Allow me to go out on a limb here. When things go deep south for the dollar, gold wont be one of Buffetts unproductive assets, I suspect.Now, you might be wondering is something bad going to happen to the dollar' Well, yes, sooner or later. If history is any guide, wethe country, that ishave a major panic or currency crisis every generation or two. That makes for several long stories; not here, not now.The takeaway is that when wheels fall off the economy and/or our currency takes a hard hit, youll know what I mean. For now, every respectable portfolio ought to hold about 5-10% in physical metalmeaning gold or silver. If youre more gold buggy than not, then own more than that percentage. But you owe it to yourself and your family to hold some amount of real precious metal. Gold (and silver) make for insurance in not just bad times but very bad times.As Ill explain in a moment, you need to own gold only once, and thats when you need it. At that particular point in timesooner or later, as I noted aboveyoull all but dislocate your shoulder patting yourself on the back. Youll dodge a lot of bullets when the time comes.Whats my logic' Well, lets begin with the concept of insurance right after I say some more about Buffett.Yes, yes, yes I know Buffett owns all manner of productive assets through his control of flagship Berkshire Hathaway. That companys holdings comprise of a long list, from Acme Brick to XTRA Corp.And yes, Buffetts holdings are productive in the sense that theyre companies that do or make things and deliver services. Consider the above-noted Acme Brick company, or holdings of Benjamin Moore paints. Self-explanatory, eh'Then theres the Burlington Northern Santa Fe Railway, which is a productive asset if ever there were one. Plus leading consumer brands like Fruit of the Loom and Heinz foods. Or consider that Buffett is in the midst of buying Precision Castparts, a major supplier of aircraft and engine components. Productive, productive, productive, right' Lots of steel, lots of factories.Then again, heres some of the other names in the Berkshire portfolio: Applied Underwriters, GEICO, General Re, Guard Insurance, Medical Protective, National Indemnity, U.S. Liability. What do these companies do' Notice anything' Theyre insurance carriers of one sort or another. They spread and allocate risk, for which they collect premium payments.Think about it Investment wise, how productive is insurance' Well, its very productive for Buffett and Berkshire. Insurance is a solid long-term line of business that generates immense cash flow for Mr. Buffett and his stable of companies. Good for him.Then again, how productive is insurance to the policyholder' For example, if I buy auto insurancewhich Im required to do in most states, by the waybut dont have an accident, what good was it to me' Or if Im a doctor or lawyer who doesnt get sued, did I really need malpractice coverage' Or if my house doesnt burn down, then I must be wasting my money on fire insurance, right' Or what if I run a big company that self-insures with a major reinsurance policy for any big hits, but I never take a big hit'In other words, insurance is a total waste if you never use it, right' Pay premiums. Get nothing back, right' Talk about burying money down a hole'NoNO! NO! NO! WRONG!!!Im overstating the case to make a point. Insurance is NOT a waste. If you dont believe that, then try getting into a big problem without coverage. Youre in for many of the worst days of your life, I assure you.As far as Im concerned, I wouldnt turn the key in my car without liability/casualty/property insurance. Back when I practiced law, you better be sure I carried malpractice insurance every single dayclaims made and claims arising, if you know what I mean. I absolutely carry fire insurance on my real estate, and cant imagine not having it. Plus, I carry other liability, error and omission insurance. Life insurance tooaccidental death and dismemberment, as well as just plain life insuranceexcept I have to die for that to kick in (bummer).For all the premiums Ive ever paid, Ive had almost no claims (knock on wood). Even the very few claims made were minor. Thus, Ive paid far more premiums than Ive ever received back in benefits.Then again, insurance allows one to move through life and assume more risk. Stated another way, insurance de-risks ones ability to function in the world. For example, like drive a car. Or leave your house and not stay there shut in with a fire hose resting on a hook right next to you. Or join in the world of commerce and engage in business. Then if something bad happens, your policy kicks in. Your carrier pays the lawyers if you get sued or pays coverage if theres a valid claim.Maybe Buffett Doesnt Need Insurance, but You Do!OK, so maybe Mr. Buffett doesnt need monetary insurance like gold because he owns so many other productive assets. That is, if the economythe dollarfalls off a cliff, Buffett still owns the brick factory, the railroad, even a candy company (Sees Candies). Plus, he owns all those cash-spinning insurance companies. What does he care' If things tank, we wont have to hold a bake sale for him.How about you' Wheres your wealth' Money in the bank, right' (At near zero interest for the past seven years, by the way.) Stocks and bonds. Real estate. Personal property like cars, furnishings, art, jewelry, etc., right' Perhaps some whole life insurance. Maybe you own your own business, too, although its not exactly the BNSF Railway, I suspect.What happens when (not if) our government mismanages the economy, such that we awaken one day to a currency crisis' Hasnt happened in many decades, right' Well, to my mind, that just means were getting closer to that ground zero every day. Sooner. Or. Later.Cmon What happens when you cant access all that wealth you think you have' That is, you go to bed one night feeling fine. All is good. You awaken the next morning to news that the banks are closed and Uh-oh Now what' Now do you wish you had bought some gold (or silver)'How much gold should you own' As Ive said many times along the way, own 5-10% of your portfolio in precious metals. Right now theres no need to go out and buy a whole whack all at once. Accumulate over time. Buy the dips, of course. But over time, buy and build your stash.Heres a story to illustrate the pointWhen Calamity StrikesI have an acquaintance named Nando Parrado. Hes a businessman from Uruguay, of all places. He lives in Montevideo.Some years back, Nando owned and operated a string of businesses in Uruguay and Argentina. Things went well for Nando; he had plenty of money in the bankU.S. dollars, in fact. He was quite well-off.Early one morning, while he was still in bed, the telephone rang. It was a business partner, calling to say, Nando, the government is closing the banks today. I dont think well be able to get to our money.Sure enough, the government of Argentina nationalized all dollar-denominated assets, literally overnight. The impact of the currency seizure instantly crossed the border to neighboring Uruguay as well. Literally billions of dollars of wealth vanished with the stroke of a pen by some officious, socialist-populist minister in far-off Buenos Aires.Nando and his colleagues met at the company office. They drank coffee and called bankers at different banks. The answer was always the same. Im sorry, Nando, but theres nothing we can do. Your money has been seized.What did Nando and his friends do' Well, said Nando, we realized that all our dollars were gone. So we went to lunch. Then we all went to the movies. And I had some gold, so I was able to convert that into enough money to start out again.Such equanimity, eh' Then again, Nando was one of the few survivors of a terrible airplane crash in the Andes, at 12,000 feet elevation, back in 1972. The survivors stayed alive for 72 days before being rescued.Eventually, Nando walked down from the mountain, his feet wrapped in nothing but rags, and found someone who called the rescue teams. Sound familiar' SeeAlive: the Story of the Andes Survivors,by Piers Paul Read (1974) orMiracle in the Andes: 72 Days on the Mountain and My Long Trek Home,by Nando Parrado and Vince Rause (2006).When you survive against all the odds Nando said over dinner with me a few years ago, when you have to confront your fate and realize that you are a few breaths away from death well, you understand how to live with disaster.Then Nando added, But I was sure as hell glad that I owned some gold, too.Ill sum up by saying that Warren Buffett can do what he wants. But unless youre hyper-wealthy like him, you need insurance in the form of gold. You just never know.SEE ALSO:Warren Buffett's stock picks versus Berkshire Hathaway versus the S&P 500Join the conversation about this storyNOW WATCH: The best way to clear out a ton of space on your iPhone superfast
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