Gold Is Stupid. Invest into Productive Businesses
Charlie Munger favors productive businesses over gold, which he describes as useful for concealing wealth in an extreme crisis. The accompanying Buffett interview emphasizes understanding investments, accepting mistakes and avoiding losses that could wipe an investor out.
THE IDEA
Gold Is Stupid. Invest into Productive Businesses
Charlie kept silent for a moment, then answered, “I think gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold. They invest into productive businesses cii.”
Mr. Brown: “I think last year I read a very clear definition of failure from Warren Buffett. He was asked, ‘Mr. Buffet, how did you first get started and how did you deal with a failure, if you had one?’
“Buffett answered, ‘How did I first get started? It depends. I bought my first stock when I was eleven, but I’d been thinking about them for a long time before that. My dad was in the investment business, and I used to go down to his office in the old Omaha National Bank building when I was seven or eight years old. I found out I was near-sighted because I couldn’t read the quotations up on the board; otherwise I might have gone through life without glasses. I just got very interested in it. I started reading books on it when I was eight or nine and then I finally saved enough money to buy three shares of Cities Service Preferred for $114 in 1942, and then I just kept doing it.
“‘Failure depends on how you define it. A lot of things go wrong in life, but that doesn’t necessarily mean that they’re failures. I really don’t look back. I try to learn from what I see around me, but I don’t try to learn by going back over this decision or that decision or what did I do wrong or that sort. I don’t think about that at all. You can make a lot of mistakes. The nice thing about it is you are going to make a lot of mistakes and still do very well. That’s the encouraging thing. I write about my mistakes in the report. In fact, I have a section sometimes called “mistake du jour” and unfortunately its plural most years, too. It’s not the end of the world. You don’t want to make any mistakes that are fatal. You do not want to own securities on borrowed money because that can wipe you out. But there is nothing wrong with making mistakes. You should try to pick things that you understand. That is the key to what I do. Occasionally I may make a mistake when I think I understand something I don’t. Another mistake that you don’t see is when I pass up something that I’m capable of understanding. Those are mistakes of omission, and sometimes they have been huge. I could point to mistakes like that which have cost us over a billion dollars. I know enough to do something but for a reason or another, I didn’t. Fortunately, people don’t see those ciii.’”
When to use it
Evaluating personal investment portfolios: prioritize businesses over commodities like gold for long-term growth.
Corporate capital allocation: decide whether to invest in productive assets (R&D, equipment) or hoard cash/gold.
Learning from mistakes: apply Buffett's approach to treat errors as learning opportunities and avoid fatal risks like excessive leverage.
Decision-making under uncertainty: use the mental model to distinguish between productive and non-productive uses of capital.
FROM THEORY TO EVERYDAY LIFE
In practice
Gold as a Store of Value in Crisis
Charlie Munger contrasts gold carried by a Jewish family in Vienna in 1939 with ownership of productive businesses. The example expresses his preference for assets that generate earnings rather than a return based on resale alone.
Warren Buffett’s Early Investment and View on Mistakes
Buffett bought his first stock (Cities Service Preferred) at age 11, and later explains that failure is not about avoiding mistakes but about learning, avoiding fatal errors like margin debt, and focusing on understanding. He emphasizes mistakes of omission (passing up opportunities you understand) can be costly.
A MOMENT TO REFLECT
Put it to work.
Think of an asset you own or are considering. Is it productive (generates cash flow) or non-productive (like gold)? How does that affect your long-term wealth?
Reflect on a recent investment decision. Was it based on understanding the business, or on speculation? What would Munger and Buffett advise?
Can you identify a 'mistake of omission' in your own life—a missed opportunity you understood but didn't act on? How could you avoid that in the future?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- The Art of Being Rational Charlie Munger