The Daily Buffett

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The Illusion of Gold

December 5th

Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.

Warren Buffett

Investing in gold often signifies betting on a growing sense of unease, an escalating fear that things will get worse. However, it's important to remember that gold itself doesn’t contribute anything to the economy. It doesn't pay dividends, it doesn't innovate, it doesn't grow crops or manufacture products. Its value is derived mainly from the perception of its worth during fearful times.

Investing should be less about predicting fear and more about understanding value. The focus should be on identifying those assets - companies, commodities, bonds - that generate output, produce profits, or offer dividends. It's about investing in productivity, in creation, in growth, not in mere speculation.

As we navigate the complex terrains of the financial world, the emphasis should be on a sustainable strategy rather than fear-driven decisions. Fear is an unreliable beacon that often misguides rather than leads. The focus needs to be on value and productivity which enriches and endures over time. The most fruitful investments are often those that bank on consistent progress and contribution.

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