A Civilized Rebuttal to Charlie Munger


Dear Mr. Munger,

You and I have been down this road before, sir.

Nearly two years ago, I asked you to consider retracting your surprising characterization of folks like me -- those who choose to allocate a portion of their capital to gold -- as "jerks."

You see, I hail from a corner of the financial universe where investors from all walks of life converge to discuss ideas and investment strategies in an environment of mutual respect and decorum. It is my firm belief that once the discussion of a controversial topic deteriorates into efforts to cast aspersions upon the character of those with an opposing view, we abruptly exit the realm of civilized debate and sacrifice any opportunity to learn from each other in constructive ways.

That is why I was deeply disappointed to see that you chose to debase the tenor of the public debate on gold last week by stating your belief that "civilized people don't buy gold." Your full comment was rather bizarre, so I am compelled to repeat it in full: "I think gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939, but civilized people don't buy gold, they invest in productive businesses."

With all due respect, sir -- and I do still believe you are due much respect following a long career of well-documented accomplishments as an investor -- that statement is utterly indefensible. You are of course entitled to your opinions about gold, but I implore you to cease casting spurious judgments upon those individuals who may hold an opposing perspective. Just as before, I will kindly accept your apology for the particular phrasing employed; though this time around I'll know better than to hold my breath.

The word "civilized" carries with it an enormous weight of semantic baggage from centuries of unfortunate applications. That is a topic for another day. But I think it's important to note that many of the individuals opting to seek some financial shelter in gold are not the billionaires like yourself who are already set for life. In an environment where bonds and cash yield imperceptible nominal returns, and certainly for as long as government deficit-spending continues to launch into the stratosphere, gold offers a uniquely powerful alternative asset in which to park one's hard-earned capital.

Warren Buffett's own father, Rep. Howard Buffett, recognized the monetary role of gold in empowering the masses to protect themselves from the effects of uncontrolled spending in Washington. Back when you were a young lad, in an essay titled Human Freedom Rests on Gold Redeemable Money, Buffett explained: "Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well." At the close of the piece, Buffett concluded: "There is no more important challenge facing us than this issue -- the restoration of your freedom to secure gold in exchange for the fruits of your labors."

I wonder, Mr. Munger, was Warren Buffett's father uncivilized?

Investing in productive businesses
Even as I take exception to your repeated assaults against the character of those who have seen fit to acquire some exposure to gold, I take pleasure in locating patches of common ground between us. I remain a big fan of your 2010 parable -- your cautionary tale in which a nation's addiction to casino gambling (derivatives) leaves foreigners, "particularly foreigners with savings to invest," deliberately avoiding that nation's currency and bonds.

At the time, I hailed your piece as "a timely attempt to instruct a nation in the basic foundations of fiscal solvency and the potential perils of our current trajectory." I consider it my duty to inform you, however, that any scenario involving a substantial decline in foreign demand for U.S. currency and bonds will necessarily invoke a major move into gold that would have wildly bullish implications for the metal's price. So if one were to grow wary of saving capital in U.S. dollars, but risks being labeled as uncivilized for looking instead to gold, I wonder...where would you have them go?

In your recent comment, you seem to offer equities as the superior choice. I certainly agree that investing in "productive businesses" is an essential component of a sound investment strategy, but surely you can see that gold and equities need not be mutually exclusive options for investors.

A reasonable allocation to gold or silver bullion has already proven an astonishingly effective means of safeguarding hard-earned capital during this ongoing period of structural distress in major fiat currencies. When I perceived the threat of a systemic financial crisis back in 2005, I began accumulating shares of the gold and silver bullion proxyCentral Fund of Canada (ASE: CEF) . That was one of the soundest investment decisions I've made! As the following chart will show, the bullion proxy has appreciated 280% over the past seven years.

CEF Chart
CEF Chart

CEF data by YCharts

Of course, I continued to invest in productive businesses simultaneously. They just happened to be dominated by resource-related companies that fit within my bullish outlook for hard assets. I established early positions in runaway success storiesSilver Wheaton (NYS: SLW) and Eldorado Gold (NYS: EGO) , and held my positions confidently through the massive correction in 2008.

Of course, not all of my mining stocks have performed as well, and indeed we are presently in the midst of a very substantial correction in the sector. I know you're a consummate value investor, so I wonder whether you have pondered the deep value built into a quality gold stock like Goldcorp (NYS: GG) at current levels. Accordingly, I have maintained bullish CAPScalls on each of the above-named stocks for several years running.

I assure you, Mr. Munger, I am not a "jerk." And if I don't fit your definition of "civilized," then I'm quite sure I don't want to. But if you must stick solely to productive businesses while insulting those who hold gold bullion, then I recommend a bit of exposure to the quality miners. They may be volatile, and the industry has shown it is certainly not exempt from risk, but as the above chart illustrates, these miners on the whole are handily outperforming your own Berkshire Hathaway (NYS: BRK.B) over the past several years.

At the time thisarticle was published Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Eldorado Gold, Goldcorp, and Silver Wheaton. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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