One of the tricky things about writing about Warren Buffett (Trades, Portfolio) is that at a certain point, you feel like he has said everything that he is ever going to say. He has dispensed countless amounts of priceless investing advice, both in the form of his written letters and spoken appearances. So it's pretty interesting when Buffett and his partner, Charlie Munger (Trades, Portfolio), take Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) out of its usual comfort zone. In his most recent financial disclosures, Buffett disclosed that Berkshire has taken a more than $500 million position in Barrick Gold - a gold and copper mining company. Here's why this is noteworthy.
An unusual play for Buffett?
Buffett has famously been disparaging of gold and other commodities as investments on the basis that they do not generate income, so on the surface, it might seem odd that Berkshire has invested in a gold miner. However, there are a number of reasons why this might not be so strange after all. First, Berkshire is invested in a mining company, as opposed to buying gold bullion or futures. Perhaps he has some insight into some special competitive advantage that the Barrick might have, just like he has with his other businesses.
Second, the acquisition is a relatively small drop in the ocean of Berkshire's truly gargantuan pile of cash (almost $150 billion), and in an environment where the U.S. dollar is weakening and trillions in more money are being created every month, this seems like a sensible diversification play. Barrick's stock predictably surged when the news of the deal became public, soaring 9% on market open.
I think the main take-home message from this story is not that Buffett and Munger are reinventing themselves as precious metal traders at ages 89 and 96. After all, there are other executives at Berkshire who make investment decisions, especially with these smaller positions (Berkehire's ownership stake in Barrick is just 1.2% of total outstanding shares). Rather, it is a demonstration of a willingness by the conglomerate to diversify its portfolio with a company that might have some competitive advantage.
It should be noted that gold has been on a tear over the last year. The price of the precious metal is up more than 26% year over year, and it has recently been making new all-time highs. So maybe this Berkshire acquisition is a tacit acknowledgement of the fact that gold might continue to become a more important store of value in the mid- to long-term future.
Disclosure: The author owns no stocks mentioned.
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