The gold price has already been on a tear in 2020. Now regulatory filings reveal that Warren Buffett’s Berkshire Hathaway bought a stake in mining company Barrick Gold. I reckon that for the many investors who follow Buffett, the yellow metal just became an even more attractive investing proposition.
Decoding Warren Buffett’s gold buy
The way I see it, there are two ways of decoding Buffett’s investment. One, is to take the investment at face value. Barrick Gold is a force to reckon with as a leading global gold miner, after its merger with Randgold Resources was finalised early last year. Two, we can look at it as a vote for gold at a time of economic uncertainty. If this is seen in conjunction with Buffett’s reduced stake in US-based financials, it appears that the legendary fund manager is bearish on the economy, and has hedged investments against gold.
I think there can truth to both arguments, which provides pointers for investors. The first pointer is that gold investing is the way to go now. And Buffett is not the only investor to be bullish on gold. Another long-time investor and co-founder of Soros Fund Management, Jim Rogers, also encourages buying precious metals on dips. For investors who’d like to buy gold mining shares now (other than Barrick Gold, which has seen its share price run up to multi-year highs) there are good ones to consider listed on the London Stock Exchange. For instance, Centamin Mining‘s share price has just come off all-time highs and it could be in for a year of robust performance.
Where not to invest
The second pointer investors can take is from Buffett cutting back on his exposure to financials. Now, these are US-based banks, whose issues are at least somewhat different from those of the UK’s financials. But this too, is an investing idea to think through. Our portfolios are benefited as much by what we hold as what we don’t hold.
Banks are in an unenviable place right now for a number of reasons. Because of a record contraction in the economy, they are bracing for a spate of bad debts. Also, new loans have slowed down in the current circumstances, which hits bank income. In any case, income was impacted by low interest rates.
All banks’ latest results are disappointing and, until the economy normalises, fluctuations in their fortunes are likely. Even after that, banks may take their own time to recover. Consider the Lloyds Bank share price, which has languished for years.
If I want to draw inspiration from the likes of Buffett, I would look at other sectors. For instance, FTSE 100 defensives have performed well during the crisis, and I reckon they’ll continue to do so even into 2021. Moreover, there are still high-quality companies available at low prices that should perform over time. Buffett likes to buy stakes in quality companies at low prices. I think investing in these companies will hold investors in good stead.
