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Warren Buffett proves why investing in stocks beats gold

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It’s no secret that Warren Buffett is bullish on the American economy. The Berkshire Hathaway (BRK-A, BRK-B) chief executive and one of the richest men in the world made his case for just why investing in American business rather than commodities, and especially gold, is the way for investors who want the best returns.

During the Berkshire Hathaway annual shareholder meeting in Omaha exclusively live streamed on Yahoo Finance on Saturday, Buffett opened with an anecdote about purchasing a stock with a little more than $100 back in 1942.

Warren Buffett, CEO of Berkshire Hathaway Inc, tours the exhibit hall at the company’s annual meeting in Omaha, Nebraska, U.S., May 5, 2018. REUTERS/Rick Wilking

While Buffett invested his cash in Cities Service preferred stock, he said if he’d had $10,000 to invest and had bought the equivalent of an S&P 500 index fund (index funds didn’t exist in those days) that $10,000 would be worth $51 million today. Investing in gold, by contrast, would have yielded significantly less. However, Buffett admits an investor would still have the very same gold to do “whatever you want with it.”

“For every dollar you have made in American business you’d have less than a penny of gain by buying into a store of value that people tell you to buy every time we run into a little pain,” Buffett said.

Investing that same $10,000 that would have yielded $51 million by investing in the American businesses on the S&P would have netted an investor $400,000 in value with gold, according to Buffett’s calculations.

“The overriding question is how is American business going to do over the course of your lifetime,” Buffett said.

Dion Rabouin is a markets reporter for Yahoo Finance. Follow him on Twitter: @DionRabouin.

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