Investment Wisdom for the Digital Age: What Warren Buffet Can Teach the Crypto Community?

By Pawel23 | bweb3-project | 26 Feb 2023

Warren Buffett has famously expressed his dislike for Bitcoin (and gold) because they do not pay interest rates, and his partner Charlie Munger has been known to strongly criticize (or even hate) Bitcoin, but what can Crypto Community Learn from Warren? This weekend Warren published his annual Letter to Shareholders. I read it and mark some points, which from my point of view on that level universal, that even We as a "Crypto Community" can learn from it.

AI Abstract from quotes

Charlie and I are not stock-pickers, but business-pickers. Capitalism has two sides, and it helps to start early and live into your 90s to benefit from the growth. Berkshire has seen dividends from investments grow from $41 million to $302 million. Repurchases can increase ownership without cost, but overpaying can be detrimental. Investors must keep learning and changing as the world changes. Warren and I were slow to recognize the change in railroad stocks, but eventually we did. Investing can be rewarding if done correctly.

This abstract is created by Glasp Tool, where I underlined and created all quotes, which I used to create this article. I read about this tool in this Publish0x article. Very often I recommend something to you, but I am very happy as well to read your recommendations, use your affiliate links, and test them in my daily work. Thank you very much to Publish0x Community. If you are interested more in mentioned Tool, please read a blog post from our Publish0x Community Member.

Business-Picking vs. Stock-Picking

Charlie and I are not stock-pickers; we are business-pickers.

This part seems to be very interesting for me and the first universal one for two reasons. The first one is, that many people understand this white-black as Active-Investing (stock-picking) vs. Passive-Investing (ETFs). This is about stock, but I think similar is in Crypto/NFTs. Sometimes we are looking for picking the best coin or NFT. We are missing looking for great projects/businesses in the long run.

I started this year my experiments with Crypto Earnings I'm also included in Community, which sometimes too much concentrate to "Stock-Picking", but I can put here also small "+" as the first learning point. During writing my post I try to look at business models as well. It can be the first lesson, which we can take from this. Looking for a Business model. Do we understand it? Do we know the source of our income? Growing potential for generating more income? This could help us to avoid "crypto disasters".

And we can move to the next quote:

Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services.

I think it is less/more clear and even more important for Crypto World. We are still growing technology. A lot of things we need to develop, implement and improve. Not all great businesses, ideas, and projects with finding product-market fit. Sometimes "Creators" need more tries.

Also a big lesson for me. In crypto as well. I started additional projects and formats/series this year. I need to remember about this:

We are understanding about business mistakes; our tolerance for personal misconduct is zero.

I can and many other Crypto Creators can make many mistakes in business. It is part of the Game. I can be sure to write a list of business mistakes this year. It is important to have a red flag for a situation with "personal misconduct". For myself, I need to avoid this as the most important decision-making in my business. Better avoid PM and make business mistakes as being Earner of The Year, but having a PM in my CV.

Do you analyze Team projects? Are you able to evaluate Team experience? What is personal misconduct and what is just a wrong business mistake?

Charlie and I allocate your savings at Berkshire between two related forms of ownership.

This quote is simple and is just between publicly-traded businesses and fully-owned businesses (privately held). My understanding is that our stocks (or project NFTs, coins, etc.) have to be analyzed in the same way as the publicly listed ones. Publicly have one advantage:

One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices.

Do we have Crypto Winter? That can be fantastic news for Crypto Value Creators.

Cash-Flow Investment

I wrote at the beginning, that Warren doesn't like Gold and Bitcoin, but what Warren like for sure is cash flow. Let's look, at what Warren writes in this letter and how we can adopt it.

Dividends

The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays.

This is about Berkshire Investment in Coca-Cola. Warren shared as well numbers for his investment in American Express:

Annual dividends received from this investment have grown from $41 million to $302 million.

The summary for both numbers can be this quote:

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

How we can adopt this in Crypto World? If we are or have the potential for "Cash-Flow Investor". We can look for Crypto projects, just like Warren is looking at his stocks. Not important is trading token and their price. More is look at the Business and Value generated inside this project and have a piece of cash flow from this project in long term.

Buy-Backs

At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us.

The Best stock or project? Paying kind of dividends and repurchasing a share or coins, when they are undervalued. The next quote summarizes this even better:

The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.

The same applies to any similar activity connected to coin operation by Crypto projects. When projects will announce something like this, you can learn from this quote and check if your interest is for or again this idea.

The Importance of Learning and Adapting

In the case of this section. I feel a little bit confused. As quotes are more from Charlie than from Warren, but come from Warren's letter and I think in the case of Blockchain and Crypto Revolution. I can expect evolution more from Warren (Just like in Railroads) than from Charlie.

Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never.

Berkshire currently has stock in Banks, who working in Crypto. After mass adoption, when we will have a good cash-flow Bitcoin industry stable Company. I will be not surprised if something will be bought by Berkshire. I can guess it can be more probably by successors, but at the first point, some business needs to meet the criteria.

You have to keep learning if you want to become a great investor. When the world changes, you must change.

The last quote can be used as the most universal as it is perfect for finishing my blog post. Please keep learning. Event from People, who are does not agree with. Maybe after your lessons, you will be the one, who will participate in world changes.

Recommendation

Additional resources connected somehow with this series or useful in some way.

Bored Founders News (sign-in form & archive): https://bfc.mailingr.co/en/p/newsletter (web3 newsletter)
My Link Library with a current web3 stack for easy access: https://blg.bz/web3stack