Forget Gold. I’d Use Warren Buffett’s Advice to Beat the Stock Market

Following Warren Buffett’s investment strategy when buying shares could lead to higher returns than gold in the long run.

close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett has generally held a negative viewpoint of gold over recent decades. While some investors have sought refuge in the precious metal during periods of economic uncertainty, he has instead purchased high-quality companies when they trade at low prices.

His strategy has been hugely successful. It has easily outperformed the stock market over the long run, and could continue to do so in future.

Therefore, rather than investing money in gold while the economy currently faces a challenging near-term future, purchasing undervalued stocks could be a more profitable move.

The risks of investing in gold

Warren Buffett’s avoidance of gold may be partly due to the track record of the stock market. Even though it has experienced numerous downturns in the past, it has always recovered from them. Therefore, a strategy that seeks to buy cheap stocks and hold them in the long run has generally been a sound means of taking advantage of the market cycle.

By contrast, many investors buy gold when economic uncertainty is high. Its defensive qualities mean that it is usually less correlated to the prospects for global GDP growth. However, buying gold at such times can mean paying a high price that limits capital growth opportunities. Furthermore, investor sentiment has always improved following even the very worst market downturns. As such, Buffett’s strategy of banking on a recovery via cheap stocks could be far more profitable than buying gold ahead of a likely reduction in risk aversion among investors.

Warren Buffett’s focus on quality

Of course, Warren Buffett does not only seek to buy cheap stocks. He focuses on the quality of a company above all else. For him, this means identifying businesses with wide economic moats. For example, this may be a unique product, strong brand loyalty or a cost base that is significantly lower than sector peers. A wide economic moat can produce higher margins, more resilient financial performance, and faster-growing profitability in the long run.

Buffett seeks to identify high-quality companies when they temporarily trade at low prices. This may be caused by economic weakness, but could also be prompted by weak industry operating conditions. Where a company has a wide economic moat, a sound strategy to overcome short-term difficulties, and the financial means to put its plan into action, Buffett has often invested.

A long-term view

A strategy that seeks to buy high-quality companies at low prices requires a long time horizon. While the economy has always returned to growth following recessions, and the stock market has made gains following every previous downturn, it can take time for these events to take place.

Warren Buffett has an extremely long time horizon. This provides scope for all of his purchases to recover from their short-term challenges. In doing so, they have often outperformed the wider stock market and produced returns that are significantly higher than those of gold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

little girl in pilot costume playing and dreaming of flying over the sky
Energy Stocks

The U.S. Stocks Every Canadian Investor Needs to Know About

Boeing, UGI Corporation, and Exxon Mobil are three U.S. stocks I'd buy today.

Read more »

bulb idea thinking
Tech Stocks

This Growth Stock is on the Rise and Ready to Blow

WELL stock climbed 98% before falling on recent earnings, but is now back up 16% since that drop. So now…

Read more »

Silhouette of businessman sit on chair and hold a cigar and looking at the city in night.
Energy Stocks

Passive Income: How to Make $104 Per Month Tax Free in 20 Years

By simply choosing the right stock, and investing in it on a consistent basis, you can create massive passive income…

Read more »

Construction work on a site
Dividend Stocks

Canadian Infrastructure Stocks: Building the Future and Your Wealth

These two Canadian infrastructure stocks are highly defensive and offer excellent long-term potential, making them ideal for this uncertain market.

Read more »

movies, theatre, popcorn

Cineplex Stock Is Red Hot: Here’s Why I’m Buying Today

Cineplex Inc. (TSX:CGX) stock has soared so far in 2023, and it appears on track to deliver strong growth going…

Read more »

Dividend Stocks

Dividend Investors: Top Canadian Utility Stocks for June 2023

These three top utility stocks could be excellent buys for income-seeking investors.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Investing in Canada: The Hottest Stocks for Explosive Growth

Hypergrowth stocks like WELL Health Technologies (TSX:WELL) can supercharge your portfolio.

Read more »


From Comfortable to Luxurious: Amplify Your Retirement Lifestyle With TFSA Income

Dividend-growth stocks can supercharge your TFSA.

Read more »