Imagine this: One of your ancestors bought $1 worth of gold in 1801.
They plan to bequeath it to one of their descendants in 2025.
In February 2025, your family conducts a lottery. And despite never winning anything in your life, a stuffy solicitor from a 224-year-old law firm pulls your name from a hat.
This is it!
Your worries are over.
You imagine silk bedsheets, five-star travel, gourmet meals every night. And why wouldn’t you expect to live like a sultan?
You recently learned that $1 invested in the US stock market, in 1801, would have grown to $55.8 million by February 2025. That’s a lot of caviar. Your family hopes you share.
They hold a huge party to celebrate your win. You’re not sure what the gold is worth. But if $1 invested in US stocks grew to $55.8 million, surely you would have something close. Heck, you might have more.
A local band shows up to play the Barenaked Ladies song, If I had a million dollars. You’re tipsy on the thought of buying a yacht and a Maserati.
The crusty old solicitor sold the gold on your behalf the previous week. He holds an envelope. There’s a cheque inside. You swagger up to the rented, portable stage in your family’s backyard. At that point, the cover band sings:
If I had a million dollars
Well, I'd buy you a green dress
But not a real green dress, that's cruel
With shaking hands, you open the envelope.
And there lies a cheque for…$122.
“That can’t be right!” you scream.
At that point, Warren Buffett strolls up with a sad look on his face.
“Gold barely matches inflation,” he said, sipping his Cherry Coke.
You recall him saying something similar. It was to Berkshire Hathaway shareholders, back in 2011, during a previous gold craze:
“Gold … has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but … if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
“But gold’s price has risen a lot this year,” you squeak.
Mr. Buffett takes another swig of Cherry Coke, then pops a candy into his mouth. “Gold might be the world’s most volatile asset class,” says Buffett. It’s much like a yoyo. Over your lifetime, on an inflation-adjusted level, it doesn’t leave the string.”
How volatile is gold?
Gold is more volatile than stocks
January 1977 - January 2025
| GOLD | US STOCKS | |
| Number of losing years | 19 | 10 |
| Years with double-digit losses |
8 1981 (-32.6%) |
6
2000 (-10.37%) |
| $100 invested would have grown to... | $1,790 | $18,449 |
Source: portfoliovisualizer.com
You’re calming down a bit now. You also realise how nice it was that Warren Buffett came to your party.
“Isn’t gold at least a great store of wealth?” you ask.
“That’s a myth,” says Buffett, taking a fistful of pretzels. “From 1980 to 2006, gold’s price didn’t rise. And don’t forget inflation. Over this 26-year period, gold lost 68 percent of its buying power.”
“The funny thing is,” he added. “So many people clamoured for gold in the late 1970s because it had gone up a lot over the previous 10 years. Then look what happened.”
26-year performance of gold vs US stocks
1980 - 2006
Source: portfoliovisualizer.com
This jogs your memory.
You think back to a different period when gold was popular. That was 2011. Gold had doubled over the previous 3 years. That was the main reason people clamoured for it then. As sophisticated as people are in different walks of life, we’re still hairless monkeys that chase our own tails.
Buffett sees that you’re thinking. “Ahh,” he says, “Do you recall the last time gold was as popular as it is today?”
“Yes,” you reply. “That was 2011.”
“Nice memory,” adds Buffett.
“And from 2011 to 2024, the price of Cornflakes rose higher than gold. Over those 13 years, gold lost again to inflation.”
13-year performance of gold vs US stocks
2011 - 2024
Source: portfoliovisualizer.com
Buffett adds that the price of cereal, raisins, bread, vegetables and fruit also beat the rise in the price of gold over the 44 years from 1980 to 2024.
“So much for a store of value,” he laughs.
“Why don’t people know this?” you mutter under your breath.
You wander over to a hammock where you see a smiling bald chap enjoying the free food and drinks.
“Did you know that gold was a lousy investment?” you ask.
“It’s even stranger than you might think,” the bald bloke adds.
“Take something like gold. It averaged 3.6 percent per year from 1980 to 2025. But when we average the returns of all investors in gold, over that period, they had a negative return.”
“How is that possible?” you ask.
“It comes down to human behaviour,” says the handsome bald guy. “We buy things that have recently risen in value, and we make up reasons why they should keep rising. And when those things fall in price, we add less money, or we sell.”
You’re saddened by your meagre $122 cheque. But you’re happy about one thing. At least your ancestors weren’t trying to strategically time the gold market. If they had, you would likely have a lot less than $122.
You walk off to the bank to cash your cheque. Perhaps, with the proceeds, you can take a cue from the Barenaked Ladies.
You could build a tree fort in your yard or buy a real green dress.
Postscript notes
$1 invested in gold in 1801 was worth $122 by February 2025
$1 invested in US stocks in 1801 was worth $55.8 million by February 2025
Disclaimer: The investment returns in this article are real, as referenced by portfoliovisualizer.com and Jeremy Siegel’s book, Stocks for the Long Run.
Warren Buffett, while echoing the sentiments in this article many times, did not attend this fictitious party. Nor did the handsome bald chap. But if he had, you would have found him in that hammock enjoying the free food and drinks.
Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.
Image generated using Ideogram AI.
