Interesting bit from Fishers latest newsletter.
Q: What do you think of gold and why don’t you have any gold stocks in your Australian fund?
A:
We don’t have a strong view on gold, nor do we spend a
great deal of time researching gold and gold stocks. Gold is
a commodity and even though it periodically has bursts of popularity
leading to strong, uninterrupted price rises, the reverse can happen too,
and over time it behaves like any other commodity. We choose not to
invest in commodities because a commodity is just that – it has no moat
or differentiation. The business of a gold producer is to extract gold and
then sell it on a world market at whatever the prevailing price is. One
gold producer cannot get a higher price than another, or protect his
business from the vagaries of the global gold market. Compare a gold
producer with one of our preferred portfolio companies that produces
a differentiated, sought after, and essential product or service. Because
customers want the products or services of our companies, relatively
more than they want competing products or services, our companies
have pricing power. It is this pricing power which enables our companies to
grow their profits irrespective of the competitive or global environment.
Investing in gold mining companies is not for the faint-hearted because
their share prices may not necessarily reflect movements in the
underlying gold price. If you invest in the wrong stocks, you can lose
money even if the price of physical gold goes up.
Gold is proving popular right now because it is considered a good hedge
against inflation. However, we do not believe there is a real threat of
inflation, indeed we think that deflation is more likely to be of concern
if the economic recovery fails to pick up pace. We think that investors
should exercise caution around popular or faddish investments such as
gold. Rather than wanting to jump on board because the price is rising, a
prudent investor might be better to avoid popular