Insights

Forget gold. I’d use Warren Buffett’s advice to beat the stock market

Following Warren Buffett’s investment strategy when buying shares could lead to higher returns than gold in the long run.
The post Forget gold. I’d use Warren Buffett’s advice to beat the stock market appeared first on The Motley Fool Australia. –

gold bars fulling to the ground and smashing representing falling prices of ASX gold shares

Warren Buffett has generally held a negative viewpoint of gold over recent decades.

While some investors have sought refuge in the precious metal during periods of economic uncertainty, he has instead purchased high-quality companies when they trade at low prices.

His strategy has been hugely successful. It has easily outperformed the stock market over the long run, and could continue to do so in future.

Therefore, rather than investing money in gold while the economy currently faces a challenging near-term future, purchasing undervalued stocks could be a more profitable move.

The risks of investing in gold

Warren Buffett’s avoidance of gold may be partly due to the track record of the stock market. Even though it has experienced numerous downturns in the past, it has always recovered from them. Therefore, a strategy that seeks to buy cheap stocks and hold them in the long run has generally been a sound means of taking advantage of the market cycle.

By contrast, many investors buy gold when economic uncertainty is high. Its defensive qualities mean that it is usually less correlated to the prospects for global GDP growth.

However, buying gold at such times can mean paying a high price that limits capital growth opportunities. Furthermore, investor sentiment has always improved following even the very worst market downturns. As such, Buffett’s strategy of banking on a recovery via cheap stocks could be far more profitable than buying gold ahead of a likely reduction in risk aversion among investors.

Warren Buffett’s focus on quality

Of course, Warren Buffett does not only seek to buy cheap stocks. He focuses on the quality of a company above all else. For him, this means identifying businesses with wide economic moats. For example, this may be a unique product, strong brand loyalty or a cost base that is significantly lower than sector peers. A wide economic moat can produce higher margins, more resilient financial performance, and faster-growing profitability in the long run.

Buffett seeks to identify high-quality companies when they temporarily trade at low prices. This may be caused by economic weakness, but could also be prompted by weak industry operating conditions. Where a company has a wide economic moat, a sound strategy to overcome short-term difficulties, and the financial means to put its plan into action, Buffett has often invested.

A long-term view

A strategy that seeks to buy high-quality companies at low prices requires a long time horizon. While the economy has always returned to growth following recessions, and the stock market has made gains following every previous downturn, it can take time for these events to take place.

Warren Buffett has an extremely long time horizon. This provides scope for all of his purchases to recover from their short-term challenges. In doing so, they have often outperformed the wider stock market and produced returns that are significantly higher than those of gold.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Forget gold. I’d use Warren Buffett’s advice to beat the stock market appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!