Why is a shiny block of metal so popular?
Why I prefer equities all day every day
I know everyone is obsessed with gold right now, because number go up. And all the kooks who love gold are like “see?! I told you!! Gold is great!!!”
So a quick thought experiment, a la Buffett. If you took the world’s entire supply of mined gold and put it in Yankee stadium, it’d look like this:
That’s about 6.714 billion troy ounces, worth roughly $15.44 trillion USD. That’s roughly the size of a 7 story building or so. All that gold, packed into one space, a nice shiny gold cube!
Question: What is the earnings power of the gold?
Answer: Nothing. Gold makes no revenue streams. It’s a block of metal, innit.
Question: How many times could I buy Apple, one of the world’s most profitable companies?
Answer: I could buy Apple 5.26 times over. In other words, I could own over 5 Apples, which has a net income of ~$93bn. In other words, I could own a pile of shiny metal or 5.26x Apples that earn collectively $489.18bn per year. What would you rather own?
Or put it another way. You could buy all the gold and hold it in Yankee Stadium (sorry, no baseball allowed). You could own it for a decade. In that time your lump of metal will have done precisely nothing. It would have sat there inert. Shiny, but inert.
Or you could hold your 5.26 Apples, and let’s say Apple never earns another cent more than what it does now. At the end of the decade you’d have $4.8 trillion dollars!
I think it’s fairly clear that equities — or any business — as an asset class — earn streams of income while gold does not. I know what choice I would make.
In other words, rather than an Apple turning to gold, I’d rather it the other way around!
NZ
I’ve been remiss in my coverage of NZ — spending a lot of time focused on global stocks (surprise surprise — I’m now co-portfolio manager of the Elevation Capital Global Shares Fund — so of course I am!). A few bits and pieces, though —
MFT — Good trading update from Mainfreight. Personally I think there’s real opportunity in their American business — US to US business, within the country, incurs no tariff, while if onshoring happens that’s a bonus to the business.
Aofrio — IoT business up 19.1% — we love to see that. The motor business is basically boring and a melting ice-cube, but there appears to be real potential for expanding their fridge products, which improve energy efficiency…
NZME — Had to roll my eyes a bit at Steven Joyce being suggested as chair. I mean, sure? More importantly, the takeovers panel cleared Grenon and co. Will be a fun ASM. Get out your popcorn.
AI — I was lucky enough to be invited to the M2 AI summit last week. Was most impressed by Mark Bregman, who is an American. He said that Kiwis need to sell themselves better and not self-deprecate so much. I quite agree! The era of “oh well, yeah, I did this little thing…” is well and truly over…
It made me think of Bill Pearson’s great essay, Fretful Sleepers, where he quite aptly puts the New Zealander’s distaste of talking up ourselves or being different1:
The special quality of the New Zealander’s version is that the evil is to disagree or be different. The chaos of existence is to be legislated into shape; the varieties of human quality and personality are to be levelled into conformity with the legislation. It is the development of individual talent that destroys the conformity: some men are left resenting their lack of another man’s talent, so he must not use it, it is an unfair advantage. If life is (as the New Zealander assumes) a race, it is to be run by handicap. If nature can’t be controlled then man must be: social boycott must keep the talented man in his place.
We often talk about “putting ourselves on the world stage” — but sometimes we perhaps need to do it with a little more backing of ourselves. The meek may inherit the earth (but not the mineral rights…as J Paul Getty said).
Art week!
I also went to the opening of the Aotearoa Art Fair — if it’s any indication of the economy of the wealthy and Herne Bay-residing, then the economy is going well. Many of the works were sold out at the VIP opening prior to the official opening — bullish for NZ art, though as always, much prefer to buy via a gallery than an auction house!
As you can see, the opening itself was choka-bloc — like a Costco but less giant bags of chips and more Saint Laurent blazers…
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