Warren Buffet hates Bitcoin?
Well, of course he does.
Now, I’m an old fossil in the investment game. Not as old as Warren, but old enough to revere him as one of the greatest value investors in the history of the world.
But, having been a part of Wall Street in the good ‘ol 80’s and 90’s, and seen some of the many other great value investors make themselves and their hedge fund clients billions of dollars and then skate off into retirement, while Buffett and Berkshire Hathaway continue to hang around, I’ve got my own insights into the ‘Oracle of Omaha’ and the state of ‘modern’ investing.
Don’t get me wrong: Buffett still is the king. Take any chart of any stock index and put it against the performance of Berkshire, and you’ve got all the proof you need of that. Even against something far more growth oriented like the Russell 2000, which houses all the ‘hot stocks’, you’ve still got Warren doing significantly better:
But you know and I know that there’s another entirely different investment world out there right now, that’s been growing for the last decade; one that doesn’t know, or care, about Warren Buffett’s old fashioned ‘value’ investing principles.
That’s the world of Google, Facebook, Amazon, Netflix, Tesla – and Bitcoin.
No matter how much I read and try to learn, even after my lifetime of work in markets, I cannot fathom in any way the valuations that have appeared with each of these assets – and many others I can name. There is nothing that seems to validate to me the meteoric rise in the FANG stocks, as they’re known, or the Elon Musk miracle. Tesla could geometrically increase their market share for cars for the next 15 years and not earn the 650 forward P/E earnings ratio they’re sporting right now. And Facebook? Sure, they have revenues – but what do they make? What is their long-term value? Does anyone need Facebook or Google to survive?
And then there’s Bitcoin, the ultimate ‘new’ market investment. What is Bitcoin? Can anybody tell me? Explain this to me like I know nothing about finance – and believe me, I hardly know nothing about finance. Alternative currency? Inflation hedge? New wave commodity?
No wonder Buffett hates it. Bitcoin has nothing that Warren can hang his hat on, nothing that his lifetime of expertise can use to value it, or even somewhat understand it.
Here’s what I understand: Bitcoin has more buyers than sellers right now. That’s all. For whatever reason, cryptos have become the asset that you have to have (at least) some of. Period. No intrinsic or enterprise value, no production, no services – nothing. Just more guys buying it than are willing to sell it right now.
Hell, nothing wrong with that – I traded an oil market from 2002 to 2008 when there was nothing driving oil prices up to nearly $150 a barrel other than the pressure of more folks needing to own it than were willing to give it up. There wasn’t a real supply issue, or the kind of overwhelming demand increase that caught the oil world by surprise. No, oil demand was increasing pretty much the same one million barrels a day a year that it’d been increasing since the 1960’s, and continued to do pretty much until the financial crisis and this latest pandemic scuttled global economic growth and oil demand growth – at least for the time being.
Oh, sure – we made up all kinds of rationalizations and passable reasons at the time as to why oil was trading triple digits and seemingly never going to retreat. China and India growth, dollar weakness, peak oil. But the bottom line was that oil and other commodities were ‘hot’ items, and everyone believed you needed to own some to have a balanced portfolio, or even more to the point, not miss out on the next great investment opportunity.
So, what’s the moral to this story? Sure, the world has changed. But not so much that the tried and true methods of stock evaluation have become useless. I’m going to continue to advocate for oil companies that deliver something exceedingly useful, something that shows little sign of getting replaced significantly in the near future, something that we all need to survive, whether we like it or not. Fossil fuels run the planet.
But the other moral to this story? Well – I own Google, and Amazon and YES – I also own Bitcoin and Ethereum (no, no – not Dogecoin-- I can’t go THERE). And I have realized that I don’t always need to have superior analysis skills or even understand much to make a case for having an investment.
Sometimes, what I need to do – what we all need to do – is ignore the logical, practical metrics of investing and just jump on the hot bandwagon. Pick an amount you can afford to lose, push it into the pot and forget about it. You’ll lose plenty of times. But if there’s one thing the modern age of investing has taught me, even if it hasn’t taught Warren Buffett, is that there are going to be those times that those hot investments turn out to be truly great value investments in the end. And return 10x, 20x – sometimes even 100x on your money. Like Google, Amazon, Facebook.
And yes, maybe even Bitcoin.
Maybe I’m not such a luddite at that.