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.
Interpretation
The quote explains that investing in gold reflects a bet on people's fear, predicting that as fear increases, gold prices will rise.
Warren Buffett's quote highlights the idea that gold serves as a hedge against fear and uncertainty in the market. Investors often turn to gold in times of crisis or heightened anxiety, believing it will retain value when other assets falter. This investment strategy relies on the expectation that people's fear will grow over time, thus inflating gold prices. However, it also notes the volatility of this approach; if fear diminishes and confidence returns to the markets, the value of gold may decrease as it does not generate any income itself.
In practice
In a financial seminar discussing safe investments, this quote could illustrate the concept of hedging against fear.
I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
Cash never makes us happy, but it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's.
I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing, some twice. _x000D_ You need to fill your mind with various competing thoughts and decide which make sense.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
One’s objective should be to get it right, get it quick, get it out and get it over. Your problem won’t improve with age.
Market timing doesn't work. If all the bubbles and all this mispricing really exist, how come so few people see it before it turns out that way?
Banks are run by executives, and executives protect themselves, and that does not always mean that banks are going to behave rationally.
The financial industry is a service industry. It should serve others before it serves itself.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
The thing I have discovered about working with personal finance is that the good news is that it is not rocket science. Personal finance is about 80 percent behavior. It is only about 20 percent head knowledge.
The research indicates that when we women invest, we women do tend to be more patient, take a longer-term perspective and as a result of it, tend to be better investors than men. But the messages we get are that investing is sort of 'the guys' world.'
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