• Warren Buffett's purchase of almost 3,500 tons of silver in 1997 helped turn Thomas Kaplan into 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 an end to it was when Warren Buffett bought [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 .

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    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.

    "What really put an 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."

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    Berkshire's wager

    Buffett 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 Berkshire Hathaway conglomerate, Buffett said in his 1997 letter to shareholders .

    The Berkshire CEO described the wager as a "return to the past" as he bought silver in the 1960s in anticipation of its demonetization by the US government. In 1997, he bet on the metal again as he predicted shrinking stockpiles would push up the silver price.

    "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.

    Read more: The world's biggest investors are notoriously skeptical of the stock market's bet for a quick economic recovery — and warning that the 'fantasy' rally will soon come crashing down

    "Gold on steroids"

    Buffett's vote of confidence restored the perception of silver as a viable investment.

    "From that moment on, I never had to explain to people the rationale for owning silver," Kaplan said on the NovaGold call, 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 investing in an African platinum miner and founding a Texas oil-and-gas company, both of which ballooned in value and were acquired in 2007.

    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."

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    Silver could surge again

    Precious metals are poised for another historic rally as investors seek to safeguard their wealth from the coronavirus pandemic, Kaplan predicted on the NovaGold call.

    "Buffett took his position at $4 or $4.50, and silver ultimately went back to $50," he said. "You're going to see something not dissimilar once again, in silver, but very much in gold."

    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.

    "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.

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    Does Warren Buffett buy silver?
    He has invested almost $1 billion in silver, so the reason for his aversion is not simply a dislike for precious metals. The explanation for Buffett's dislike of gold and for his enthusiasm about silver stems from his basic value investing principles. more
    Is Warren Buffett a genius?
    Warren Buffett is one of the great all-time investing geniuses. One of the great marks of his genius is that his investing philosophy is a lot more subtle than he lets on, and has actually evolved quite a bit. more
    What personality is Warren Buffett?
    One Myers-Briggs® Celebrity ISTJ Personality Type is super-investor and philanthropist Warren Buffett. Examining his life and body of work shows how he personifies the qualities of the Myers-Briggs Test ISTJ Personality Type. more
    Does Warren Buffett Like crypto?
    This investment move by Buffett, often called 'Oracle of Omaha', has boggled many crypto fanatics as the CEO of Berkshire Hathaway has openly declared his dislike for crypto-assets and called Bitcoins a 'rat poison squared. ' more
    Is Warren Buffett against crypto?
    Buffett has long been against cryptocurrencies. He told CNBC in 2018 that "they will come to a bad ending" and said that Berkshire Hathaway will "never have a position in them." more
    Does Warren Buffett own Microsoft?
    Buffett doesn't own any shares in Microsoft and has said in the past that this was in order to quell fears that he was participating in any insider trading. more
    Does Warren Buffett buy property?
    Warren Buffett is among the most successful investors of our time. While he isn't a fan of buying real estate, it pays to consider it nonetheless. more
    Is Warren Buffett from Omaha?
    It's widely known that billionaire investor Warren Buffett, one of the world's five richest people, proudly hails from Omaha. more
    Who taught Warren Buffett?
    After being rejected by Harvard Business School, Buffett enrolled at Columbia Business School of Columbia University upon learning that Benjamin Graham taught there. He earned a Master of Science in economics from Columbia in 1951. After graduating, Buffett attended the New York Institute of Finance. more
    Does Warren Buffett use derivatives?
    These factors led Buffett to warn investors against the use of derivatives and leverage. Nevertheless, Buffett, on several occasions, has admitted to his own use of large-scale derivatives as a means to execute investment strategies. more
    Is Warren Buffett introvert?
    Business magnate Warren Buffett, another well known introvert, realized the importance of effective communication early in his career. “If you can't communicate and talk to other people and get across your ideas,” Buffett says, “you're giving up your potential.” Like this story? more

    Source: markets.businessinsider.com

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