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Warren Buffett's Shocking New Investment

By Matthew Frankel, CFP® – Aug 18, 2020 at 6:46AM

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Here's what Buffett just bought and what you should know about it.

Berkshire Hathaway (BRK.A 2.29%) (BRK.B 2.38%) recently released its second-quarter 13F filing with the SEC, giving investors a snapshot of Berkshire's $240 billion stock portfolio. And while there were a few surprises, none was more shocking to investors than one particular stock that has been added – a gold mining stock.

Here's a rundown of the details of Berkshire's gold investment, why it's such a surprise, and why Warren Buffett and his team may have chosen this surprising route for some of their investment dollars.

Berkshire Hathaway CEO Warren Buffett.

Image source: The Motley Fool.

Berkshire's shocking gold investment

Berkshire Hathaway reports the composition of its massive stock portfolio once per quarter, 45 days after each quarter ends. So, we just recently got a glimpse of how Berkshire's portfolio looked at the end of the second quarter of 2020.

To the surprise of many investors, the company's SEC filings revealed a stake in Barrick Gold (GOLD 6.03%), a gold and copper miner. Berkshire reported a stake of about 20.9 million shares, which has a market value of approximately $564 million right now.

Now, this is a pretty small investment by Berkshire's standards, making up less than 0.3% of the portfolio. However, the simple presence of a gold stock in a portfolio that is mostly controlled by Warren Buffett is indeed surprising.

Why it was such a big surprise to see a gold stock in Berkshire's portfolio

This was a surprising investment simply because Warren Buffett has a long history of negative commentary on gold as an investment vehicle.

The general idea is that Buffett views gold and other precious metals as unproductive assets, meaning that they don't generate income, pay a dividend, or make a product. Their value is simply derived from the assumption that someone else will be willing to pay more for them in the future. Collectibles, artwork, and cryptocurrencies also fall into this category. And Buffett has historically viewed unproductive assets as inferior investments to productive assets like stocks, bonds, real estate, and owning entire businesses.

Buffett has pointed out that gold is a "huge favorite of investors who fear almost all other assets, especially paper money." Buffett clearly doesn't fear U.S. currency – more than $140 billion dollar-denominated cash and equivalents are currently on Berkshire's balance sheet.

In addition, gold has the added disadvantage of not being very useful, aside from making jewelry and in small quantities in some electronics. This is a sharp contrast to many other commodities, like copper and steel, that have widespread industrial applications and therefore have a natural source of demand to support their prices.

Did Buffett change his tune on gold?

To be perfectly clear, we don't know for sure if Warren Buffett himself is responsible for the gold mining investment that is now in Berkshire's portfolio. Buffett's two stock-picking lieutenants, Ted Weschler and Todd Combs, each manage billions of dollars of Berkshire's portfolio. The pair has certainly been responsible for some of the more surprising investments in Berkshire's recent past. However, Buffett has changed his tune on investments in the past (like airlines), so it's certainly possible that Buffett himself pulled the trigger.

It's also important to note that gold mining is a business, and therefore is a productive asset. Sure, its performance will depend on the price of gold to some extent -- but this is completely different than if Berkshire had simply bought physical gold. 

Maybe Buffett or one of Berkshire's stock pickers saw gold as a temporary safe haven during the COVID-19 pandemic? Maybe one of them just saw a short-term mispricing opportunity? After all, the price of gold has risen by 15% since the end of the second quarter. Or, maybe -- just maybe -- Warren Buffett could be changing his mind on gold.

Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$410,704.98 (2.29%) $9,214.98
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$271.78 (2.38%) $6.31
Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
$14.95 (6.03%) $0.85

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