#2: Warren Buffett only buys productive assets.
Some people like Warren Buffett, some don’t. However, the Oracle of Omaha leaves no one indifferent. It is the characteristic of exceptional men. If Warren Buffett’s methods and strategies no longer meet with much consensus, he is still considered one of the greatest investors of all time.
Warren Buffett’s success is all the more impressive because it has lasted for more than 60 years.
His success is a tribute to patience. Warren Buffett often explains that anyone can become rich in the stock market by following his investment philosophy, but that very few succeed because of a lack of patience.
While long-term vision is essential to success in the investment world, Warren Buffett seems to lack it completely when it comes to Bitcoin.
Yet, more and more former opponents of Bitcoin are opening their eyes to the revolution that is gradually changing the face of the world when it comes to money. Many are taking the step and are now coming to buy Bitcoin.
Former opponents of Bitcoin open their eyes one by one
Macro investor Paul Tudor Jones initiated this movement in May 2020. He has been joined by many institutional investors since then as confirmed by the voracious appetite for Bitcoin of the customers of the Grayscale investments fund.
U.S. banks have received approval from the U.S. banking regulator to purchase and hold Bitcoin for their customers. Major companies are going to make Bitcoin their primary treasury reserve asset, following the way paved by MicroStrategy, whose CEO Michael J. Saylor is now a Bitcoin Maximalist.
Jack Dorsey convinced Square’s board to invest 1% of the assets of this tech giant in the making in Bitcoin. Finally, PayPal has just officially announced that the platform will offer buying / selling Bitcoin to its 346 million customers from the beginning of 2021.
Euphoria has taken over the Bitcoin market, and some would not even be surprised if Warren Buffett were to announce publicly that he was wrong about Bitcoin. In the aftermath, Berkshire Hathaway would even announce a record purchase of Bitcoin.
However, this scenario will never come true in my opinion. In what follows, I will detail the five main reasons why Warren Buffett will never be able to open his eyes to Bitcoin and therefore buy Bitcoin.
#1: Warren Buffett doesn’t invest in what he doesn’t understand
Warren Buffett has rather simple investment principles. The key to replicating Warren Buffett’s strategy is first and foremost to be patient. Warren Buffett can be patient because he has complete confidence in the investment choices he makes.
To achieve this level of confidence, Warren Buffett only invests in companies whose he understands business. This explains why Warren Buffett missed the wave of Web giants in the early 2000s.
He did not understand the workings, and de facto the potential, of Google or Facebook for example.
Investing in something you don’t understand is therefore too great a risk for Warren Buffett:
“Risk comes from not knowing what you’re doing.”
— Warren Buffett
This golden rule of Warren Buffett is not bad in itself, but it requires that you constantly deepen your knowledge to stay up to date with the new technologies that are emerging.
Warren Buffett has never been able to do this since the early 2000s. By breaking this golden rule, Warren Buffett finds himself totally out of step in the stock market where he has missed out on Tesla or Netflix more recently.
With Bitcoin, Warren Buffett makes the same mistake. He is not able to question his thought patterns to understand Bitcoin. This prevents him from understanding why Bitcoin is the future of the world when it comes to money.
Unable to understand the bright future that awaits Bitcoin, Warren Buffett will not break his golden rule and therefore will never buy Bitcoin.
#2: Warren Buffett only buys productive assets
Simplistically, the general public often sees Bitcoin as a digital version of gold. This is a very simplistic view because Bitcoin’s potential is so much greater than that of gold.
Nevertheless, to understand this second point, the comparison must be emphasized.
Gold has been a recognized store of value for centuries. Unlike shares in a company, gold will not produce dividends. Warren Buffett therefore never considered gold as a relevant investment solution for Berkshire Hathaway:
“Gold gets dug out of the ground in Africa… Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
— Warren Buffett
The sharp rise in the price of gold that we saw in 2020 proved that Warren Buffett’s strategy of never investing in unproductive assets was not as relevant as it turned out to be.
Look instead at the evolution of the gold price compared to the price of a Berkshire Hathaway Class A share since the beginning of 2000:
As you can see, the evolution of the price of an ounce of gold has beaten the price of Berkshire Hathaway’s Class A share so far this century.
Despite this, Warren Buffett continues to denigrate gold.
The only compromise he has made is to invest in the summer of 2020 in a Canadian gold mining company: Barrick Gold. This is an indirect way to benefit from the sharp increase in the price of an ounce of gold while receiving the famous dividends he loves so much.
Bitcoin will never pay dividends. So Warren Buffett is not going to buy it. However, he might one day invest in a trading platform like Coinbase if it were to do its IPO. Another indirect way to benefit from Bitcoin without admitting to being wrong publicly.
#3: Warren Buffett considers that buying Bitcoin is not investing, but just gambling
Unable to understand why Bitcoin is a true monetary revolution, Warren Buffett has repeatedly said that Bitcoin is “Rat poison squared”.
Warren Buffett went on to say that Bitcoin could not be considered an investment. For him, buying Bitcoin is like gambling:
“If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”
— Warren Buffett
This way of looking at things shows that Warren Buffett never sought to dig into the subject of Bitcoin. He stopped at the clichés put forward by its opponents, be they politicians, bankers, or economists.
Since he considers buying Bitcoin to be gambling, he has no reason to endanger the reputation of Berkshire Hathaway by buying Bitcoin. He is missing out on the Bitcoin revolution for a lack of personal research.
#4: Warren Buffett believes that Bitcoin is only used by criminals
Warren Buffett’s criticisms of Bitcoin are so crude that it is easy to understand that he has never done any research to try to understand why Bitcoin is a revolution.
Warren Buffett has joined politicians and bankers in telling anyone who will listen that Bitcoin is only used by criminals.
However, it has already been proven by different studies that using Bitcoin for criminal activities is much harder than using the U.S. dollar for example. But Warren Buffett refuses to see this.
He will never take the risk of endangering the reputation of Berkshire Hathaway, his life’s work. If he considers that losing money is something that can happen, he considers that it is inconceivable to make a mistake that would discredit Berkshire Hathaway in the eyes of investors:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
— Warren Buffett
Let Warren Buffett reassure himself, Bitcoin is not only used for illegal activities, millions of people in emerging countries use it daily for everyday life payments.
In Venezuela, Argentina, Nigeria, and Lebanon, Bitcoin is already a Plan A.
#5: Warren Buffett is now unable to evolve and admit his mistakes
A man cannot succeed as Warren Buffett did if he doesn’t have a big ego. This implies thinking that he is always right. Warren Buffett is no exception to the rule.
Warren Buffett believes that his investment strategy based on the value of companies is the only one that works in the long run.
At the age of 90, Warren Buffett has reached an age where the ability to question is non-existent. Since the early 2000s, Warren Buffett has shown himself incapable of evolving to understand what the new rules on the stock market were.
His strategy is outdated today. Moreover, he seems incapable of admitting that he made a mistake. Until the end, Warren Buffett will continue to follow his course of action. Admitting that he was wrong about Bitcoin would be proof of intelligence, however. But it would also be an admission of weakness from his point of view.
While I don’t think he will ever buy Bitcoin, many saw a glimmer of hope for him when Warren Buffett decided to participate in the Snowflake IPO in September 2020 with Berkshire Hathaway. As a reminder, Snowflake is a technology startup whose activity is centered on the Cloud.
Warren Buffett might have changed his eyes on the Tech companies after all. From there to his doing the same on Bitcoin, however, there’s a world still to go through.
Conclusion
Warren Buffett is one of the largest investors of all time. At the age of 90, he is sitting on a fortune estimated at over $80 billion. Warren Buffett has made the most of the unfairness of the current monetary and financial system throughout his life.
Under these conditions, Warren Buffett has no real reason to buy Bitcoin. That would be like shooting himself in the foot, so to speak. On the other hand, the shareholders of his company Berkshire Hathaway, who will still be there long after Warren Buffett’s death, could have benefited from a more open-minded attitude on his part.
Warren Buffett is not eternal, and his investors will regret in the future to see that the Oracle of Omaha was not able to seize for them this incredible opportunity that is Bitcoin.
This article was first published on Medium.
