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What Warren Buffett Thinks About Stocks, Bonds, Gold, Cash, Real Estate, Index Funds, and Cryptocurrencies

Matthew Frankel, CFP, The Motley Fool

Warren Buffett is perhaps the most successful stock investor of all time, so it shouldn't come as a big surprise that the man known as the Oracle of Omaha prefers to invest in stocks. However, that isn't the only way Buffett is willing to put his money to work, and he doesn't necessarily think that stock picking is the best way to go for everyone.

With that in mind, here's what Buffett has said about stocks, bonds, and several other types of investments over the years.

Warren Buffett smiling and speaking with the media.

Image source: The Motley Fool.

Warren Buffett on stocks

Not surprisingly, Buffett believes that investing in stocks is the best way to build wealth over the long run. However, he cautions investors not to buy stocks to try to make quick money, as short-term market fluctuations are impossible to accurately predict. "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes," Buffett has said.

While there's no way to go through Buffett's entire investment philosophy in a few paragraphs, there are a few key points investors should know about how he approaches investing.

In addition to keeping a long-term focus, Buffett aims to invest in companies that have clear advantages that can hold up over time. In Buffett's words, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

And Buffett has made tons of money buying stocks when everyone is pessimistic. "We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful," Buffett says.

Finally, if you're wrong about a stock, don't continue to throw more money into it. "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

Warren Buffett on bonds

Buffett acknowledges that bonds are less riskier than stocks over shorter periods of time, and therefore investors with shorter time horizons (like someone who is about to retire) could be making a smart move by investing in bonds.

However, for investors who have a long time horizon, Buffett argues that bonds are actually less risky than stocks. As Buffett wrote in his 2018 letter to Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shareholders, "As an investor's investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates."

In a nutshell, Buffett thinks younger investors and those with a long-term focus should stick to stocks.

Warren Buffett on gold

Buffett is not a fan of investing in gold, or any other nonproductive asset. In other words, gold won't generate income or produce anything of value -- its price is simply based on what someone else is willing to pay for it.

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what it's worth at current gold prices, you could buy -- not some -- all of the farmland in the United States. Plus, you could buy 10 ExxonMobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Warren Buffett on cash

Buffett loves having an ample supply of cash at all times. At Berkshire Hathaway, Buffett wants at least $20 billion in cash available. He definitely doesn't want to be fully invested, nor does he want to have to borrow money in tough times. "We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits," says Buffett.

So, keeping an emergency fund is wise. However, Buffett cautions against treating cash as an investment, such as by using a high-yield savings account or a CD. Stocks are investments. Cash is not. As Buffett puts it: "The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time."

Warren Buffett on real estate

Buffett is a fan of real estate, both in terms of buying a personal residence and as an investment. Buffett has said that the 30-year mortgage is one of the most advantageous financial tools available to consumers, and as an investment, real estate is a productive asset, meaning that it can be used to generate returns. Buffett has invested in farmland, and real estate investment trust Store Capital (NYSE: STOR) can be found in Berkshire's stock portfolio right now.

Warren Buffett on index funds

As I mentioned earlier, Buffett loves stocks and thinks that investors with a long-term focus should put most of their money in this asset class. However, this doesn't necessarily mean that individual stocks are the way to go for everyone.

For most Americans, who don't have the time, knowledge, or desire to properly research and evaluate stocks, index funds are probably the direction to take.

The idea is that index funds are guaranteed to perform just as well as the market over time, which historically has been pretty strong. And index funds do this at a minimum of expense to investors. "Among the various propositions offered to you, if you invested in a very low-cost index fund -- where you don't put the money in at one time, but average in over 10 years -- you'll do better than 90% of people who start investing at the same time," says Buffett.

Warren Buffett on cryptocurrencies

To put it mildly, Buffett isn't a big fan of cryptocurrencies like bitcoin. He has likened bitcoin to rat poison, and recently renewed his criticism, calling it a "gambling device." In addition, Buffett puts bitcoin in a similar category to gold, in the sense that it's not a productive asset and that its investment thesis is solely based on the belief that someone else will eventually pay more for it.

"In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," Buffett said in 2018.

Having said that, Buffett doesn't advise investors to short cryptocurrencies, either. In early 2018, Buffett said, "If I could buy a five-year put on every one of the cryptocurrencies, I'd be glad to do it but I would never short a dime's worth."

In other words, he's fairly certain the price of cryptocurrencies will go down over the long run, but there's no limit to how high it can go during particularly irrational times. So, while instruments like bitcoin futures allow investors to effectively short bitcoin, it's important to realize that the loss potential is unlimited.

The bottom line

In short, Buffett isn't a fan of keeping more cash on hand than you need. As long as you have enough cash to protect yourself in the event of financial emergencies and to take advantage of market crashes and panics, the best place for most of your assets (from a long-term perspective) is the stock market. And Buffett also doesn't like to invest in unproductive assets like gold and (especially) bitcoin.

Instead, Buffett aims to invest the vast majority of his wealth in productive assets, and generally advises investors to do the same. For less-experienced investors, he believes index funds are the way to go, while stocks can be the best bet for investors with the time, knowledge, and desire to do it right.

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Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.