Buffett's 'Productive Asset' Bets Pay Off

NEW YORK ( TheStreet) -- In a preview to his annual letter to Berkshire Hathaway ( BRK.A) shareholders, Warren Buffett offered up his personal feelings towards three types of asset classes.

The investor's harsh comments towards gold managed to generate the most controversy. However, he also held no punches when discussing government-issued Treasuries and other currency-denominated instruments.

According to Buffett, the supposed safety of these investments is largely a fallacy. In actuality, when accounting for currency depreciation and taxes, the Berkshire chairman notes that these instruments have a historical knack for destroying an investor's purchasing power.

Buffett admits that his firm maintains ample exposure to Treasuries and other instruments that fall into this category. Nevertheless, he goes as far as to label these investments, "among the most dangerous of assets."
Warren Buffett

With little to no love for gold or treasuries, Buffett's prefers to place his money on things he considered to be, "productive assets." Lumped within this category are stocks and real estate. According to the investor, this class will not only boast the greatest upside potential, but also be the safest choice among the three options.

As usual, Buffett focuses on the long run when constructing his personal opinions regarding this asset class trio. However, in the near term, his beliefs have held water.

Investors who have internalized Buffett's views and ventured into "productive assets" in 2012 have found themselves on the winning side of the bet. As global economic fears have waned and the U.S. economy has shown encouraging signs of improvement, stock market indices have rallied.

8 Stocks Rising Fast on Rich People's Spending

As this run-up has persisted and the bull market has ventured into its third year, a number of historical and psychologically-important benchmarks have begun to enter the market discussion. For weeks, the Dow Jones Industrial Average has been flirting with 13,000 -- a level last seen in 2007. Meanwhile strength from companies like Apple ( AAPL) has helped to propel the Nasdaq composite index to heights not seen since the start of the new millennium.

At the same time that stocks have surged, Buffett's spurned assets have floundered. Gold spent much of the opening weeks of the year heading higher. This early-year rally faltered in late-February, however, and since the start of the month, gold prices have struggled to stabilize. Over the past few weeks, shares of the iShares Gold Trust ( IAU) have returned to levels last seen in mid-January. Performance is still positive for the year. However, a handful of commentators and have begun to question whether the gold bull has run out of steam.

Treasuries, meanwhile, have also taken a shot across the bow. As Bloomberg noted on Thursday, the seven day string of declines seen from the 10-year notes marks the longest streak of losses in over half a decade. The downturn has been swift; over the course of the past week, the iShares Barclays 7-10 Year Treasury Bond Fund ( IEF) has tumbled to levels seen at the start of November.

It is impossible to tell at this point whether this current market action is a sign of a longer-term trend. However, it is interesting to see that this short-term performance accurately reflects the investing preferences Buffett laid out in his shareholder letter. In my opinion, I still feel that Treasuries and gold should hold a place in a long term investor's portfolio for diversification purposes.

What are your feelings regarding treasuries, gold, and stocks? Is Buffett onto something here? Feel free to leave a comment in the space below.

-- Written by Don Dion in Williamstown, Mass.


Cramer: I Can't Defend Goldman Anymore

10 Stocks Owned by the Best Fund Managers

The 10 Worst of the Worst in 2012

At the time of publication, Dion Money Management owned iShares Gold Trust.