Warren Buffett bought 3,500 tons of silver in 1997. The purchase helped make Thomas Kaplan a billionaire.
- Warren Buffett's purchase of almost 3,500 tons of
silverin 1997 helped turn Thomas Kaplaninto a billionaire.
- After the silver bubble burst in early 1980, the precious metal plunged in price from $50 an ounce to below $10, and it was widely dismissed as a bad investment.
- "What really put and end to it was when
Warren Buffettbought [those] ounces of silver," Kaplan, the chairman of NovaGold Resources, told shareholders this month.
- "It became public that he had done this the week when I was taking my silver company public," Kaplan said. "That changed everything."
- Kaplan told Business Insider he personally thanked Buffett at a dinner years later.
- Visit Business Insider's homepage for more stories.
Warren Buffett made an unusual move in 1997 when he bought 111 million ounces, or nearly 3,500 tons, of silver. The famed investor's purchase helped make Thomas Kaplan a billionaire.
"That changed everything"
Kaplan was in his early 30s, with a doctorate in history from Oxford University but zero industry experience, when he founded a mining company named Apex Silver Mines in 1993. Despite his lack of credentials, he received a $10 million investment from billionaire investor George Soros in 1994.At the time, the global silver market was still recovering from oil tycoon Nelson Bunker Hunt and his brothers almost cornering it in 1979. The silver bubble had burst in early 1980, slashing the price of the precious metal from $50 an ounce to less than $10, and making it a toxic asset for many investors.Advertisement
"What really put and end to it was when Warren Buffett bought [those] ounces of silver," Kaplan, now the chairman of NovaGold Resources, said during the miner's virtual shareholder meeting this month, according to a transcript on Sentieo, a financial-research site.
"I remember it vividly because there but for the grace of God, it became public that he had done this the week when I was taking my silver company public," Kaplan continued, referring to Apex."And otherwise, not a very good time to be in the market, but that changed everything."
Berkshire's wagerBuffett and his partner Charlie Munger's silver investment didn't just benefit Kaplan. It also generated a pre-tax return of more than $97 million for their
"In recent years, bullion inventories have fallen materially, and Charlie and I concluded that a higher price would be needed to establish equilibrium between supply and demand," Buffett said in the letter.
Bill Gates, the Microsoft cofounder and Buffett's close friend, must have come to the same conclusion. He took a stake in a miner, Pan American Silver, in 1999.
"Gold on steroids"Buffett's vote of confidence restored the perception of silver as a viable investment.Advertisement
"From that moment on, I never had to explain to people the rationale for owning silver," Kaplan told Business Insider, referring to the metal having many industrial uses and serving as a store of value.
"The fact that it has both components means that it's gold on steroids," he added.Buffett's endorsement of silver enabled Apex to list its shares successfully, paving the way for Kaplan to cash out most of his stock by 2004. He went on to score huge returns from
Today, Kaplan leads The Electrum Group, an investment firm focused on natural resources. He also heads up Panthera, an organization devoted to "big cat" conservation, and boasts the world's largest private collection of Rembrandts.
The billionaire credits some of his success to Buffett's surprise bet on silver in 1997."I owe him one," Kaplan told Business Insider, adding that Buffett's purchase was "one of a string of just ridiculous strokes of luck."Advertisement
Silver could surge again
The Berkshire chief's dearth of stock purchases when the market tanked in March suggests he's worried, Kaplan argued, strengthening the case for investing in gold and silver.
"We're in a world where Warren Buffett is standing aside — that's not his stock and trade during these crises," he said."Anyone who listened in on his annual general meeting will see that this was not the same gung ho, 'you've got to buy this pullback,'" Kaplan continued.Advertisement
"That tells me that he, too, is looking for ways to preserve wealth and preserve value."
There's no sign yet that Buffett is eyeing a return to silver or planning to pile into gold. But it's safe to say that Kaplan would welcome another boost from the Berkshire boss.Read more: A value-investing expert explains why beaten-down stocks are the most appealing since the dot-com bubble — and shares 3 stocks he bought as the coronavirus crash created 'rare' opportunitiesAdvertisement
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