Just when we thought the price of gold was in retreat, it’s turned around to scream back up again! Even Warren Buffett’s company, Berkshire Hathaway, has bought a few shares in a gold mining company. Although it’s unclear whether the great investor himself is behind the deal. Indeed, by Buffett’s standards, the position is small. So it seems more likely to be one of his investment manager’s stock ideas.
Meanwhile, the price of gold tends to strengthen in uncertain economic times. I even heard an argument recently that all the quantitative easing (money printing) going on around the world is causing currencies to devalue against gold. Hence the rising price of the shiny stuff.
Why I’d choose the best UK shares instead of gold
However, Buffett’s long-held stance on gold is that it doesn’t do anything, isn’t used for much, and doesn’t create value. Unlike the businesses behind shares on the stock market. They can do plenty, provide useful products and services, and create value by growing their earnings and assets. Indeed, shares have earned a reputation as the best-performing asset class over the long term.
And I reckon you have a decent chance to get rich and retire early with the best UK shares. Indeed, if you research and find a few sensibly-priced shares backed by high-quality businesses you can compound your returns. And the process of compounding is key to building wealth on the stock market.
But compounding only works well if you don’t suffer big losses. It’s no good having one share in your portfolio that doubles while another hands you a 97% loss. You could spend years going nowhere like that. One of the best ways of avoiding that trap is to ignore shares backed by weak businesses and focus on the quality of the underlying operation.
Watching the downside
I’d avoid the shares of speculative businesses altogether. You can usually identify them by their absence of profits and sometimes revenues. Although they often come with an enticing ‘story’ and seem to be full of potential. Indeed, a lucky few may be capable of delivering shareholders stunning returns over time. But many more will end up supplying big shareholder losses.
And I’d be cautious about investing in businesses with cyclical operations. Such investments can be tricky to time because we never know for sure where we are in the economic or trading cycle. Meanwhile, some cyclicals are big well-known names, which can be confusing because they ‘sound’ safe. I’m thinking of stocks such as Lloyds Banking Group, Taylor Wimpey, easyJet, Whitbread and many others. If your timing is off with cyclicals like these, you could wait years just to return to breakeven in your portfolio.
However, there are many decent, high-quality enterprises around that will make good vehicles for compounding wealth in the years ahead. UK shares I’d add to my watchlist include firms such as Diageo, Unilever, PZ Cussons, Premier Foods, Sage, AG Barr, GlaxoSmithKline, Nichols, Smith & Nephew and others.
Why not use those ideas as a jumping-off point for your own research and analysis?  I’m sure you’ll find more.