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'It didn't produce anything:' Warren Buffett uses $10,000 to demonstrate why buying gold is much worse than buying stocks

Akin Oyedele

 

  • At Berkshire Hathaway's annual meeting 2018 on Saturday, Warren Buffett compared $10,000 invested in gold and stocks in 1942 to demonstrate why he's always been bullish on buying the latter. 
  • "For every dollar you could have made in American business, you'd have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines," Buffett said. 

Warren Buffett has been a strong advocate of investing in the stock market over the years. 

He's had great success, to say the least. But at Berkshire Hathaway's annual meeting on Saturday, he compared stocks to gold in a way that drove his point home even more. 

The Berkshire Hathaway CEO opened the meeting with a story on his first investment, to set the stage for attendees on how they should approach investing. If, like Buffett, you were making your first investment in 1942, "all you had to do was figure that America was going to do well over time," he said. He added: "You basically had to make one investment decision."

The ideal investment for Buffett, then, was on American businesses through the stock market. That's in spite of all the doom and gloom of World War II that would have driven many investors into gold — a tangible, safe-haven asset.

But Buffett provided the numbers to show that stocks, not gold, are likely to be more profitable over time.

After asking the audience to guess, Buffett revealed that $10,000 invested in an S&P 500 index fund in 1942 (there were none at the time, he noted) would be worth $51 million today. 

However, $10,000 invested in gold would be approximately $400,000. 

"In other words, for every dollar you could have made in American business, you'd have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines," Buffett said.

He added:

"While the businesses were reinvesting in more plants and new inventions came along, you would ... look into your safety deposit box, and you've have your 300 ounces of gold. And you would look at it, and you could fondle it, I mean, whatever you wanted to do with it. But it didn't produce anything. It was never going to produce anything. And what would you have today? You would have 300 ounces of gold just like you had in March of 1942, and it would be worth approximately $400,000."

Check out Business Insider's full coverage of the 2018 Berkshire Hathaway annual meeting here.

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