Just because Warren Buffett has cornered 20 percent of the world’s supply of silver does not necessarily mean that astute investors should jump into the crucible after him. The Hunt brothers were there before, and then the traditional metals traders changed the rules and transmuted the Hunt’s silver hoard into base metal.
As a sideline, the Hunts had amassed a magnificently comprehensive collection of Greek, Roman and Byzantine coins, which were eventually hawked at Sotheby’s New York to cover their failed margin calls. I went on the press trip, which also took in a collection of Elvis Presley memorabilia that attracted most of my colleagues. Decaying empires are one of my big hobbies (it’s a British sort of thing), and my informed layman’s interest excited the curator, who was used to flying his obsessions solo. As we swopped career details of obscure classical potentates, he excitedly reached into the display case and plopped an Athenian silver tetradrachm, the silver centerpiece of the Hunt collection, into my palm. Its reserve price would be around $675,000, he said. I giggled. He raised an inquiring eyebrow, so I asked him if he recognized my accent.
‘You’re British,’ he said.
‘Ah, but if I were in Sotheby’s in London, they would have noticed that I came from Liverpool,’ I pointed out.
‘But isn’t that in England?’ he asked, puzzled.
‘It is, but I can assure you, the moment your London colleagues heard me speak, they would have chopped my hand off at the wrist before I got near the case, let alone dropped $675,000 dollars into it.’
Alas, a Liverpool accent is not what John Lennon once made it. To sensitive southern English ears, all too often, it sounds like a combination of a dangerous mugger and a snake-oil salesman. In the US, the same accent, in moderation, gives all the privileges of New England brahminhood while being less abrasively disdainful than southern British English. It’s not just what you say, but how you tell ’em.
So, when Warren Buffet’s folksy tones push silver, people will believe. But that tetradrachm is mute evidence that metal investments are not always sound. Around half an ounce of silver, its value when minted was precisely that. At, say $5 per ounce, the recent lowest price, this would appear to offer considerable silverholder value since then – an increase of 27 mn percent, for this particular coin.
But that isn’t as good as it looks. If some thrifty Athenian Warrenos Buffetos had invested his tetradrachm at a mere 8 percent interest rate, then by the time Hadrian was building his walls, the wise Warrenos could have helped him out to the tune of $7,500,000,000,000,000. Enough, one suspects, to make a hostile takeover bid for the Roman, Mayan, Parthian and Chinese empires at the time, with some loose change to keep the barbarians from the gates. By now, Buffetos’ investment would not have left enough room in the universe for Berkshire Hathaway, or much else really. Compounded over the last 2,500 years it would pay $2 followed by forty-four zeroes.
Of course, millennia-long investments are not traditional on Wall Street, but hundred-year bonds are on sale, and in Britain, 999 year property leases are quite common. From a longevity point of view, while demographers are complaining of how many of us are beating the three score and ten deadline, biochemists now report that they have been able to stop the aging process in cells. Eternity beckons – and eternity needs longer-term financial planning.
But the difference is ‘investing’. You don’t invest in silver. You hoard it and sit on it, like Gollum in Lord of the Rings, and hope that no one steals it from you. Of itself, it creates no value, unless it’s used, which is difficult to do if you are sitting on a heap of it.
Silver does, however, have its uses. In the days before off-shore bank accounts, a trove of silver and gold buried in the cellar would do nicely. But looking at how many of those Hunt collection coins were unearthed unredeemed centuries after their depositors had ended up as roughage for the imperial lions in the Colosseum or met the wrong end of a barbarian sword, we can only assume that the deposit often did not pay the anticipated dividends. By investing in the processes of production, distribution and exchange however, we release the alchemy of compound interest which transmutes human ingenuity and labor into ever growing wealth.
Of course in this vale of tears and bears, investments go up and down. But silver, like diamonds, is no longer for ever. A puckish Russian prime minister or a demented de Beers could reduce the value of your diamond tiara to paste in days.
Bunker Hunt discovered what the metals traders could do to silver. And gold bugs across the world have discovered what happens when central banks realize that they have been sitting on great piles of useless yellow metal whose main attraction in the longer term is that it does not rust.
So, dare I say it, Warren Buffet is wrong. In general, equities, or even shrewd investments in real estate, are likely to prove more of a gold mine than the yellow stuff itself.
The Speculator
