I must say, I didn’t see this coming.
I’m talking about Warren Buffett and his legendary investment company Berkshire Hathaway’s (BRK-B) recent decision to buy a single new stock during the second quarter: Gold miner Barrick Gold Corp. (GOLD).
Turns out, the “Oracle of Omaha” picked up 20.9 million shares, or about $564 million worth, of GOLD. Shares surged over 11% at one point on the news Monday.
Buffett and Berkshire Hathaway’s vice chairman Charlie Munger have historically poo-pooed gold in a big way, so the purchase came as a big surprise to Wall Street.
You see, in 2000, Buffett told the folks gathered at Berkshire’s annual meeting: “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, in 2005, Buffett took another shot at gold: “I would say that gold would be way down my list as a store of value… I mean, I would prefer owning a hundred acres of land near here in Nebraska, or an apartment house, or an index fund.”
Berkshire didn’t explain the reasoning behind its decision to snap up GOLD shares, and it’s a relatively small investment in comparison to Apple (AAPL), Bank of America (BAC) and Coca-Cola (KO), in which it’s invested $89.43 billion, $21.97 billion and $17.87 billion, respectively. However, investors have been sending prices for the yellow metal soaring nearly 30% this year as the pandemic has prompted people to dive into traditional safe havens like gold.
The reality is we are now in a weak dollar environment, with the dollar falling about 6% against the euro since the start of the year. That drives gold prices higher as investors can buy gold at cheaper prices.
Furthermore, the fact that budget deficits will remain high no matter who wins the presidential election this fall bodes well for higher gold prices. I believe Buffett is likely being pragmatic and thinks the cash flow in the gold mining sector is especially attractive.
Now, I certainly don’t have anything against gold mining stocks, but I see opportunity elsewhere in specific fundamentally superior growth stocks…
Despite signs of rising inflation, with the 10-year Treasury increasing to around 0.69%, the good news is that the S&P 500 and Dow continue to yield substantially more than the Treasuries. As an example, the Dow’s current average dividend yield is 3.0%, or more than four times the 10-year Treasury yield.
Not only that, but I think the market is about to experience a rare event we haven’t seen in decades. I call it a Foreshock. If you thought the run-up from 2009 until now was impressive, you haven’t seen anything yet.
I believe stocks are poised to climb much higher from their current levels. In fact, I’m predicting the Dow will hit 200,000 in the coming years. At its current level of about 27,800, it’ll have to rise about 619% to get there.
I know that sounds crazy, but history proves otherwise.
Remember what happened after the huge run-up in stocks in the 1980s until 1991? The Dow went on a 234% tear during the ‘80s. And by the end of the decade, analysts and the media were calling for a market crash in the early ‘90s, much like some naysayers are today. Instead, the Dow surged almost twice as high in the ‘90s as it did in the ‘80s.
The bottom line: The stock market still remains the best game in town.
In my special Financial Foreshock Summit, I explain exactly why. (You can watch my free briefing here.) I also share where I see the best opportunity to play the growth. But, unlike Buffett, it’s not any gold miner.
Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Alphabet (GOOG), Facebook (FB), Amazon (AMZN)