Dissecting Berkshire’s new position in Barrick

photo credit: BorsheimsJewelry

These days, everyone is riding on the back of Berkshire’s (BRK.A) (BRK.B) recent Barrick (GOLD) position. Gold bulls see it as a victory indicating that grandpa Buffett, finally, subsided to the evidence that America is doomed, and he needs a hedge. Gold bears, on the other hand, are enthusiastic about the fact that the Oracle is supporting gold, seeing it as a contrarian indicator, given his recent mistakes. Mark Bristow was elated, saying that it is amazing to receive the support from Berkshire, even if he didn’t talk with anyone at the company to clarify the whole thing.

For what I know, Buffett has always despised hedges. If you need to hedge something, you probably shouldn’t be buying it in the first place. Additionally, Buffet has never been a macro trader, betting on a macro outlook, and changing from equities to commodities and bonds as the picture changed. He has been a stock picker, with a flavor of fixed-income selective deals, and insurance (writing options).

Therefore, I don’t see the Barrick position as a big change in his modus operandi. First, we don’t even know if it was him. Taking into consideration the size, it is more likely something that Todd, or Ted, did. Second, Berkshire is not buying gold, it is buying a gold producer. And, for that matter, a gold producer with some of the best assets in the world, operating with low extraction costs, and nearly no debt. That recipe is something that Buffet (or Berkshire) have applied multiple times in the past.

All the commotion surrounding the position must be embarrassing Buffett. However, he knows too well that coming forth and denying that he made the buying will hurt the position. Making the market feel that it was something minor that one of the managers did, could hurt the sentiment around the stock. Therefore, he will wait until the dust settles to come forth. For investors, it doesn’t mean a thing. Last time that Buffett announced selling a position, airlines rallied. Most young studs in the market don’t really know about Buffett’s prowess, and mostly disdain it (I don’t think he’s too worried about it anyway).¬†

On my side, I’m long Barrick, but I don’t dare to take a victory lap on Berkshire’s purchase. It’s too small to mean something. Therefore, I’m just keeping my outlook that gold will rally on money printing and that I rather own a company like Barrick, that has restructured well, than to own equities at frothy valuations. And, that’s it. Don’t care if Soros, Buffet, or the RobinHood crowd are all buying.


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