'Contrary to the interests of civilization'
While Buffett chose not to comment on cryptocurrency during his company Berkshire Hathaway's annual shareholders meeting earlier this month, Berkshire vice-chairman Charlie Munger pulled no punches on the subject.
"I don’t welcome a currency that’s so useful to kidnappers and extortionists," Munger said during the meeting's much-watched Q&A session. "The whole damn development is disgusting and contrary to the interests of civilization."
Not to be outdone, Buffett has made his share of extremely cutting remarks about Bitcoin and cryptocurrency over the years: “I don't have any Bitcoin. I don't own any cryptocurrency, I never will,” he told CNBC in 2020.
Here are three reasons Buffett won’t go near it.
1. It has ‘no unique value at all’
The billionaire investor doesn’t like Bitcoin because he considers it an unproductive asset.
Buffett has a well-known preference for stocks of corporations whose value — and cash flow — come from producing things. But cryptocurrencies don’t have real value, Buffett said in a CNBC interview in 2020.
“They don't reproduce, they can't mail you a check, they can't do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person's got the problem.”
Though Bitcoin is intended to provide real value as a payment system, that use is still pretty limited. As Buffett sees it, Bitcoin’s value comes from the optimism that someone else will be willing to pay more for it in the future than you’re paying today.
2. He doesn’t think crypto counts as money
As a tradeable asset, Bitcoin boomed. But does it meet the three criteria of money? According to the most common definition, money is supposed to be a means of exchange, a store of value, and a unit of account.
But Buffett calls it a “mirage.”
“It does not meet the test of a currency,” the billionaire said on CNBC in 2014. “It is not a durable means of exchange, it's not a store of value.”
He adds that it’s a very effective way of anonymously transmitting money. But: “a check is a way of transmitting money too,” he said. “Are checks worth a whole lot of money just because they can transmit money?”
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3. He doesn’t understand it
Buffett became one of the most successful investors in history by sticking with stocks he understands.
"I get in enough trouble with things I think I know something about. Why in the world should I take a long or short position in something I don't know anything about?”
But people like to gamble, he told CNBC after a 2018 Berkshire Hathaway annual meeting, which is another problem with non-productive assets.
“If you don’t understand it, you get much more excited than if you understand it. You can have anything you want to imagine if you just look at something and say, ‘that’s magic.’”
How does Buffett pick winning stocks?
The billionaire investor follows the value investing strategy — which focuses on buying undervalued stocks of strong companies and holding them for a long time.
Berkshire Hathaway looks for companies with a good profit margin and those that produce unique products that can’t easily be substituted. As Warren Buffett once said in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
But Buffett’s distaste for crypto stocks doesn’t mean you shouldn’t buy Bitcoin. Even the billionaire has come around on sectors he previously spoke out against.
He notoriously avoided tech stocks, even at the height of the dotcom bubble, and now his company’s largest holding is Apple.
You can start investing today
Bitcoin has made a lot of people rich along the way. But that doesn’t mean you’ve missed the boat on investing — just listen to Buffett’s words of wisdom.
The most reliable way to make money in the market is through a balanced, diversified portfolio of stocks, bonds and ETFs. And luckily, a new wave of investing apps make it easy to pursue such a strategy – one popular app will even automatically invest your "spare change" on debit and credit card purchases.
There's also more to investing than the stock market. Thanks to new technology, you have unprecedented access to a host of interesting opportunities — you can even invest in U.S. farmland
And you don't have to go it alone. Don’t be afraid to get some expert advice before you hit the market. Today, there are certified financial planners who will work with you online to create a personalized investing plan.
Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.