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Forget gold! I’d listen to Warren Buffett and invest in the stock market recovery

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Gold has been one of the best-performing assets this year. This performance may have attracted some investors to the yellow metal. However, I think there are better ways to get rich. So does Warren Buffett. 

Warren Buffett on gold

Warren Buffett, or as he is sometimes known the Oracle of Omaha, has never liked gold as an investment.  The billionaire believes that gold is not a productive asset. Therefore, it’s not worth owning in a portfolio because it doesn’t produce any income for investors. 

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Instead, he’s always preferred stocks and shares. Owning stocks, he believes, gives investors access to a cash flow stream, which should expand in the long term. 

I think it’s worth listening to this advice. Gold has produced attractive returns for its investors in the past. But some stocks and shares have earned even higher returns. 

close-up photo of investor Warren Buffett

Warren Buffett believes that concentrating funds on a few core high-quality businesses is a better strategy than buy gold. And I reckon that’s advice worth following. 

For example, over the past decade, an investment in Unilever has returned over 11% per annum. Investors who have owned nothing but gold have only seen a high single-digit annualised return. 

Stock market recovery

I think a basket of high-quality blue-chip stocks is likely to outperform the gold price in the stock market recovery. 

This observation is based on Warren Buffett’s views and the historical performance of the precious metal. Indeed, gold has tended to generate strong positive returns in periods of market uncertainty. The first half of 2020 is a great example. However, during bull markets, gold has struggled to match the performance of stocks.

I reckon we may see the same trend in the stock market recovery. After an active start the year, the price of gold has already started to fall back, which doesn’t bode well for its future potential. As such, rather than gambling on whether or not the gold price will rise or increase from current levels, I’d follow Buffett’s advice to invest in the stock market recovery. 

Some of the companies I already own that I think could be an excellent way to play the recovery included the Unilever, as mentioned above, as well as drinks giant Diageo. Both have substantial competitive advantages and large profit margins as well as a good track record of returning excess profits to investors with dividends. 

Other companies I’m considering adding to my portfolio include technology firm Computacenter and software company Softcat. I reckon as the world becomes ever more reliant on technology, these businesses should continue to see strong sales and earnings growth. 

And finally, I’m keeping a close eye on recovery stocks. Warren Buffett made his fortune investing in undervalued securities and, right now, I think oil producers Royal Dutch Shell and BP are some of the most undervalued securities on the market. 

Owning these companies instead of gold could be a great way to play the stock market recovery, in my opinion.

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Rupert Hargreaves owns shares in Diageo, Unilever and Royal Dutch Shell. The Motley Fool UK has recommended Diageo, Softcat, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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