Is Buying Crypto Assets "Investing"
There are few investors I have more respect for than Warren Buffett and Charlie Munger. So much of what I believe as an investor has come from watching them conduct themselves over the last thirty-five years (that’s as long as I have been paying attention to investing as a discipline). I believe in fundamental value, I believe in buying when others are selling, I believe in holding positions you find attractive over very long periods of time, and I believe in a lot more that they have espoused and done.
So when I read the two of them disparaging the purchase of crypto assets, it bothers me. Obviously I don’t agree with them, but I am trying to see what they are seeing and disliking.
This interview that Buffett did with Yahoo! Finance is instructive.
“If you buy something like a farm, an apartment house, or an interest in a business… You can do that on a private basis… And it’s a perfectly satisfactory investment. You look at the investment itself to deliver the return to you. Now, if you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything. You’re just hoping the next guy pays more.”
When you buy cryptocurrency, Buffett continues, “You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kind of game. That is not investing.”
It is clear from those words that Buffett sees crypto assets like a baseball trading card or some other form of collectible. And if that were true of Bitcoin, Ethereum, EOS, Zcash, or many other popular crypto assets, I would agree with him.
But what these crypto tokens are is entirely something else. They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols. Ethereum and EOS are smart contract platforms that allow developers to create decentralized applications (Dapps in the vernacular of crypto). Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.
This is the key phrase of Buffet’s that I feel is incorrect “if you buy something like bitcoin or some cryptocurrency, you don’t really have anything that has produced anything.”
Crypto-assets produce decentralized infrastructure. Bitcoin has produced a transaction processing infrastructure that looks a lot like Amazon Web Services (something I am sure Buffett would agree is extremely valuable). Ethereum has produced a similar transaction processing infrastructure which is also able to run smart contracts. I believe smart contracts are the most important innovation we have yet seen in crypto.
What Buffett and Munger may also be saying is that they don’t know how to value this “fuel” that powers the creation of this decentralized infrastructure. If they are saying that, then I agree with them. I don’t know how to value this fuel either. We cannot use discounted cash flow because this decentralized infrastructure may not produce a lot of cash flow. It is designed to create hypercompetitive networks that are self-commoditizing.
It is much more likely that these crypto assets will trade and be valued like currencies that underpin economies. There has been a lot of research and writing on that. I have recommended Chris Burniske’s Cryptoassets book here before and I will do so again. Chris outlines much of this thinking in that book.
I doubt Warren and Charlie will read this post. But if they do, the one thing I would hope they take from it is that instead of disparaging crypto assets with words like rat poison and dementia, they take a little bit of time to understand that what we are seeing here is the creation of a new internet, built upon protocols that allow for decentralized networks to form and tokens that allow people and companies to be compensated for that formation. And that cryptoassets are the fuel that power and compensate for that formation. And that purchasing these cryptoassets is very much a form of investing. And that this investing is the first time that anyone in the world, independent of wealth and domicile, can participate in venture capital style investing in the next big wave of technology.
1. He’s always come across to me straighter than straight. And whilst there’s nothing wrong with talking your own book, perhaps some of his comments in crypto need to be accepted within the frame that he has significant investments in companies crypto ultimately could displace .Berkshire Hathaway owns:- Goldman Sachs (owns 2.7%)- M&T Bank Corp (3.46%)- US Bancorp (4.95%)- Wells Fargo (9.65%)- Bank of America (6.6%)- MasterCard (0.44%)- Visa (0.41%)2. I saw a quote of his from yesterday which said he didn’t need to be able to take apart an iPhone to know apple has an incredible ecosystem and thus his large investments in them. Seems a little churlish to me. Apple’s ecosystem in the medium term is only as good as the tech is develops and deploys. It’s not like Coke or Sees which can maintain the exact same product for decades. With apple, no innovation means obscurity faster than you’d think. He comments just made me realise that whilst we all hold him in the highest regard, the world changes and you may be playing last centuries game without fully appreciating you are. Seems a classic case of investor innovators Dilemma .Rant. Not proofed .
Buffett is a great investor who talks his book a lot.
I don’t think Buffett understands crypto i.e. how it works or the opportunities. He will do well enough from his conventional investments to stand on the side and poke fun, but the potential is there to do better than that. He’s not up for the risk, though, because to mitigate it he would need a step-change or two in his understanding, and I don’t think he’s up for or to that.
Warren is no sweetheart. Sure his huge team of PR people groom him and portray him like that.People gave Fred a hard time for saying Mark Pincus set Zynga “free”. Look I don’t disagree I think it is great that you either have control or can’t trade, or not control and be able to trade. I think that is great. I think Buffet is great. But I do not take his “aw shucks I’m just a Midwesterner” schtick. You think you are I get the terms he got when he put money into Goldman Sacs??
they did? i missed that.
We all have been right and wrong on investments. Me, you, and Warren. Look up his remarks on technology companies. And Bill Gates.
At the “Me, you, …” I thought you were going to quote a Blues Brothers song… 🙂
But I do not take his “aw shucks I’m just a Midwesterner” schtick.Yeah he (to my point the other day) is a ‘grinner’. A way to un-arm people. Really.  Of course he’ll cut your (sorry ladies) balls off if he needs to. Just like in the end politicians are the same way. But that ‘soft’ side does wonders. The press loves that. The public naively buys it. He probably is more ‘shucks’ than average but it’s a minor distinction. You think you are I get the terms he got when he put money into Goldman Sacs??To my other point exactly. He gets the deals and the first look at things. And sure people would rather work with him than most others, at least generally. That is part of the secret sauce. The branding and star power. Shit even when I buy small deal real estate I have my own version of that going on. And I am nobody. And I get things that others don’t even have a chance at.He is great but he made his mark (which is why he has the brand now and the edge) back when things were way way different. So this doesn’t take away from what he is or has done in any way. But that’s the reality. It’s known as ‘coattails’. As my Dad used to say about Andy Williams (entertainer back in the 60’s) ‘he’s such a nice guy he probably beats his wife’. And then it was discovered that he did. (Or look at Cosby et al.) You know when you are in business I think it’s like being a physician. You should assume everyone has aids and always act with caution.
He is incredibly principled though. His Senate testimony on the muni bonds scandal is A++++ stuff. 90 seconds, 2 related concepts, opens for questions.I agree, he’s a stone cold killer.Owns BH name because the CEO reneged on a share purchase and wanted another 1/8th – something like $13 5/8 a share on WB’s buy instead of $13.50.WB bought the whole company and threw him out.
Warren was very right on certain things. Especially CDO’s. He said I don’t understand it, it is not right.I am not debating if you are speculating in the price of crypto currency he is right. That is not the same as saying you are going to invest in underlying technologies.
I think we are agreeing.
I still believe Apple will reach the trillion dollar market capitalization before or during 2020. Based on pure faith in their model.
Apple’s ecosystem in the medium term is only as good as the tech is develops and deploys…….It’s not like Coke or SeesThis is true. I suspect that Buffet knows this but lacks the seat of the pants feel or simply thinks he can get out of the stock when he needs to. The fact is he missed out on plenty of opportunities to buy Apple much earlier at drastically lower valuations when the price was less but did not do so. But he did buy IBM.Separately I think that many of the companies that Buffet owns are really red herrings that simply add to the ‘shucks’ appeal (per Phil Sugar) and make him seem both down to earth and diversified. This is a great tactic marketing wise. He doesn’t appear to do that anymore but holds on to these companies which honestly would appear to be a distraction for what they contribute to profits. So you know there is a motive behind that. (And I am saying that is smart).For example Star Furniture purchased in 1997 is not exactly what appears to be some major purchase by a world class investor. You almost have to wonder even back in ’97 what the thought process was on that one. They have about 10 stores. Or Nebraska Furniture Mart. Has 4 locations. (Bought in 1983). Or Ben Bridge Jewelers.Many of the investments appear to cater to middle america and send a message of both relate ability and security to people who may hold the stock. Kind of like McDonalds having healty foods on the menu it checks a box in people’s mind….
Old paradigms die hard.
Especially old ones.. older than 55 🙂
It’s not fair to say that when Mr. Buffet willl have to live to 110 to win the argument.Nice wordsmithing though.
William Mougayar:What is the reason our posts are being deleted as spam because of our highlighting the origins of crypto-currency time line from NYT Reporter Nathaniel Popper’s book Digital Gold?Not fitting the narrative on this blog?
We didn’t delete your posts. It seems that it was the automatic trigger that gets activated after 3 flags. I am re-instating them.
William Mougayar:We continue to view your consistent unflinching integrity in a space which that quality is difficult to discern.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
Yes, but he might also be right. Doubt is healthy both ways. The future is probabilistic, arrives unevenly, and with high levels of uncertainty.
maybe they are right if you apply the old paradigms, but the point of change is that not everything from the past applies to the future. maybe 5% of it does.
Yes, but it is true that at some point, crypto projects have to tangibly impact people’s lives: i.e. they help people do their jobs better than centralized alternatives. From here to there is a winding, scenic route strewn with multiple corpses.The naysayers are not luddites and might have a valid pessimistic viewpoint. I do not hold that view, but there is value in seeing that perspective.
I agree with Buffet here and I believe I have stated that here repeatedly. That may be because I was raised in the midwest, like him. However, I would add to that based on some of your additional comments.1. Crypto tokens as fuel: I would refer you to posts I’ve made lately about human behaviors wrt these “currencies”. They are not. Neither are they assets. They are a new form of gambling game (as Buffet points out), more akin to craps or blackjack than to a currency or investment. The combination of features in Bitcoin and Eth (blockchain with token with mining) is the problem. Once the right set of features is placed on top of the basic blockchain (which is where the distribution orginates from), they will behave like something else, possibly a currency.2. Crypto assets produce decentralized infrastructure: This is also not true. Again the combination of features I just mentioned is not having that effect. China holds something like 75-85% of the BTC currently found. Similar numbers apply to all the CCs. That’s not decentralization. Mining as a feature of these currencies also provides an incentive against decentralization.I’m so happy to hear that you revere Buffet as I do. I hope your respect for his opinion will help you to see through the stars in your eyes over this technology. As a VC, you are seeking return for your investors and you hit the lottery over the last couple of years. However, our lives are based on scarcity and our financial tools generally reflect that in how they are valued. These CC’s do not do that and I hope you can see why better now.
I am a Midwesterner too. I can agree with you because that is the easiest path, but I might take the opposite side as well. I love the debate because I do think there is big potential with crypto, and the way it will allow capital to be allocated to the place it can get the best return. I also am mindful that there will be fraud, mistakes, and failure.Crypto is an intangible asset. Much like a seat at an exchange that you used to purchase. It gave you access. Many cryptos give you access to a blockchain. In many cases, that blockchain is not fully developed or implemented so the benefits that accrue to the crypto aren’t apparent yet. If you believe in Fama’s EMH, all public information will be priced into today’s price. The prices of crypto are going to fluctuate wildly as new information becomes available. A large percentage of the cryptos will fail, leaving investors nothing.Totally understand your point about the Chinese holding BTC. My friend Prof. Craig Pirrong of StreetwiseProfessor.com occasionally blogs about crypto. He is a skeptic but makes some really good points. One fear he has is that crypto will lead to monopolistic competition.
Buffet missed the Google and Amazon boat so why do you think anyone would need to listen to him when it comes to crypto ? He just doesn’t understand online technologies. You are completely off. It is not gamble money. Sure, now people are using it to gamble because the technology is not ready yet. But that will not be the case in the future. I am not going to try to explain or convince you why that is because I already know that people are too stubborn to change their way of thinking. Future will show you how wrong you are. Buffet missed out on Google and Amazon but now he will miss out on something even bigger. And so will you.
Interestingly, what’s the price of Bitcoin today? About the same price as it costs in electricity to mine one.
It is designed to create hypercompetitive networks that are self-commoditizing.
That is a great way to put it. And that is what provides value. Each wave of technology has done that. Intel for chips, Microsoft for PC’s, the Internet for communication, the phone for on your person. I believe that crypto and wearable technology are the next wave.
Michio Kaku: https://www.youtube.com/wat…https://www.youtube.com/wat…
That is a great way to put it.Respectfully I disagree. Per my other comment a great way to put something is in a way that goes over in a sound bite for regular people. Like ‘it’s rat poison’. That is easily understood. Easily grasped (correct or incorrect). I mean look at how ‘he’ won the presidency.Fred’s statement? It fails the puny brain test:It is designed to create hypercompetitive networks that are self-commoditizing.To my brain that doesn’t resonate at all. I suspect that you, Fred (and Albert for that matter) are different enough at the core where it makes sense to you (which is why you are both agreeing with each other).
This blog is not for puny brains.Puny brains go my “friend, brother, sister, whomever” made a ton of money on bitcoin. Get in on this shit!!!I’m a billionaire investing in the new crypto currency!!!Let me sell you this course to teach you how to make serious money on real estate with no money!!!Now the question is…..who makes money???The gold miners…..or the ones selling pick axes and Levi’s jeans?Does it mean it was bad to move to California?
Ok but what is the disadvantage in using the type of language that more people can understand?Try to google “What are hypercompetitive networks”. Nothing comes up. Nothing that would help someone understand Fred’s point. Then try to do “What are hypercompetitive networks that are self-commoditizing”? Same (link to this post comes up).
Who would want to invest in that type of asset?
Absolutely. In the process it has the potential to release every latent potential within the system.
Wow, what an observation that I had not thought of before this comment. Perhaps the value of the CCs will converge around that. And that would tie them to something real. Terrific point.
And fast factoring would, then enormously reduce the cost of the factoring and the mining and the price of Bitcoin!
Look a $100 bill has no real intrinsic value. Now is it an investment or a way to store value?Well you can look at it both ways. It’s an investment if you can buy it with yuan which you are worried will lose value.Warren Buffet has changed his mind on several technology stocks. Notably Microsoft.
or he’s tried to change market sentiment at times that best serve his timing.
Don t you believe this has to do with a generation gap? From my experience anyone 55+ has major difficulties understanding crypto
Fred is over 55 : )
I did not say *every* person above that age. But kind of a general rule
I am 54 and obviously have no interest in CCs. However, you’d have a hard time making an argument that I don’t understand them.
Duely noted. You understand them, but not enough to value them?
I was being tongue in cheek. Sorry if the attempt at skewing Fred and being satirical didn’t come through. I am 55, until next week which is better than the alternative of not aging up.
i am 56, my partner Brad is in his early 60s. i think we understand crypto as well as anyone in the VC business. i don’t think its age. i think it is desire to understand it.
Don’t get me wrong. I was not referring to you guys, and not too all people. But find that young people (eg in VCs typically principal or associates or in real world sub 35) get it much faster and better than over 55. Obviously it is not an absolute rule. Don t you observe that too? It sounds like crypto is a generational phenomenon, in particular for kids used to grow with digital assetsAnd precisely because you have been investing for many years in companies that produce digital assets you are able to better understand crypto more than anyone else and connect “naturally” to it, as a new generation kid would.Is there something here?
The core principles are not any different than a new technology. Iron Laws of Economics don’t change.
do young pepole really get it? or do they simpler have a higher risk tolerance (perhaps because they don’t know better, and haven’t experienced substantial loss yet)? in my experience young people may embrace cryptocurrencies more, but they know less about it. a rare combination in my opinion is those who actually have a sufficient understanding of the risk and the technology and are able envision how it will change the landscape for software architecture to create substantial value.
I think games has educated kids to value Digital assets (rewards, collectibles, networks….) more than adults. They may not get all the ingredients but totally fit in their nature and are natively educated to embrace crypto. The risk aspect may play into it, but at those ages they don t invest like warren buffet. They just consume whatever make sense for them.
Fred’s business is to stay relevant. This is similar to a record producer or someone in other areas of entertainment (say David Geffen) who is older but know they have to keep up with trends in order to continue to be relevant for more reason’s than simply making money. This is quite different than another older person who works in accounting or purchasing at a local company. It’s not their job to be forward looking in the same way. It is Fred’s job though. To take risks and bet like this. That is what he is paid to do. So of course he will take the time to understand it. Plus one of his mantra’s (that he has discussed) is to be on to something that other’s deride.That said there is a difference between ‘young people’ and the ‘young people’ who get it. The people you are talking about are in the tech bubble. My daughters are young people who use things like facebook et al but have no clue or interest in crypto. Ditto for my stepkids (in their 10’s).
> to be forward lookingWe basically know how to do that:In the rag trade, create a “trend” and then ride it.Otherwise, look for some fairly significant real problems and provide the first good or a much better solution using existing or new technical means. Moore’s law provided technical means for such solutions for lots of significant real problems — business record keeping, office document processing, auto engine ignition and fuel control, paperless working and communicating, mobile communications, socializing, scientific, engineering, and financial calculations, etc.Getting excited about some specific technology first and then looking for a problem to solve later is not very promising. While the technology can be very important, the problem is more important.The main business and investment problem with the technology of crypto is lack of a clearly visible important problem to be solved.There are lots of important problems to be solved. Given such a problem, to get a solution, we know a lot about (A) applying existing technology and also (B) cooking up new technology. To me, (A), (B) are the ways “to be forward looking”.
Well I can tel you for a fact many vcs are paid to stary up to stay up to date and are simply not into crypto. At all.As for kids it was not a universal rules. But when you see the success of Pokémon go or fortnite you can easily imagine how kids are going to love digital assets. May your kids.are just not into it.
The fundamental theorem of arithmetic is each positive integer can be factored and in just one way as a product of prime numbers. Factoring a number of thousands of digits is challenging due to the amount of computer time needed by the fastest algorithms we have, but AFAIK there is no solid result that says the factoring has to remain challenging.While factoring a large number into a product of primes is challenging, finding a large prime is not very difficult. So, in crypto can make a public key of the product of two large prime numbers. Breaking the resulting crypto is equivalent to factoring the resulting large product.Net, a fast factoring means, algorithm or quantum computer, would break most of current crypto. This sounds like a risk to at least the currently most popular block chain technology.
To Ouriel’s point it is true that young people are more foolish than older people. Because they have not had the same life experiences and don’t safeguard themselves as well. And in no way can you compare a man the age of Warren (87) to your generation. That is about my mom’s age group (she is a bit older). Growing up as she did it’s clearly apparent how she thinks differently (in the depression essentially). Not the same as us.  My wife is much much younger than I am. Her view of things is way different than mine. I am the adult in the house literally. She didn’t even know what “Chappaquiddick” was. (Really she never heard of it). She is nowhere near as protective of my stepkids (her kids) as I am. Not even close. It’s the generation she was raised in and her parents (they smoked pot a great deal my parents didn’t even really drink except on jewish holidays..)My dad was very into computers and tech. In the hospital the nurses marveled at his use of the iphone. It was like they had never seen a ‘gomer’ (see “House of God”) use a smart phone before. So it was atypical.So there is truth to the point for sure. Young people take foolish chances more than older people. Because they can. Because they think they will live forever. Because they are less worried about the future. When she saw me on a computer at an early age she said ‘you’re just playing’. Yeah but that’s the idea with computers. You learn by playing (wasn’t a game either btw). The way she was raised she had a hard time grasping that. Because back in the day play had no value and if you didn’t work hard you starved.
Ah, immortality! I was immortal ’till i was 50. Then I realized that I am going to die.My time is more expensive now.:-|
Buffet’s…87. You’re probably closer to the age of your eldest child than to Warren. For you it’s not an age thing, but for WB it might just be. all things come to an end.
That is a naive assumption
“What Buffett and Munger may also be saying is that they don’t know how to value this “fuel” that powers the creation of this decentralized infrastructure. If they are saying that, then I agree with them. I don’t know how to value this fuel either.”Exactly. This was a roundabout way of agreeing with the view that cryptocurrency (not all crypto-assets) are speculation right now.I don’t buy a car for the fuel. I buy a car to take me places and provide value. Waiting for the time when the promised decentralized structures are generally available and provide value.
buffet and his ilk have a singular paradigm to investing in which they wish to value cash flows produced by an investable asset relative to the cost of obtaining that asset. bitcoin does not fit into this paradigm and thus is dismissed as “uninvestable.”while i think this viewpoint is too narrow, i think most people are better off not straying outside of it. value investing works, and is easier to comprehend, manage, and execute than other strategies that work.as for the idea that the decentralized networks are the assets produced by cryptocurrencies, the value of these networks has yet to be realized, and an entity that *captures* the value produced is not here as well. so from that perspective, there is no value (i agree that the foundation for value creation and capture is emerging, particularly with ethereum, but investing in such a scenario is perhaps more appropriate for those possessing the specialized skilled of investing in such environments).
BINGO – and WB is deploying waaaaaaaaaayyyyyy too much capital at this point, to be doing anything that is specialized.
Fred I have lost respect for you as a VC since you began throwing your reputation in the trash for what is clearly a vehicle that has so far only solved one problem: money laundering. I would strongly caution you to not put all your eggs in this one basket because only fools IN THE SELL SIDE believe the whole BS argument of the “decentralized” blockchain whatever. Your mistake is assuming that the average person will buy into this. Facebook and Uber became huge WHEN AVERAGE PEOPLE started ***using*** it. Yes, using it, as opposed to talking about it. I feel sorry you and Andreesen got your asses down to the SEC to argue that these are not securities. If you and all the crypto people were more than desperate to make money you would really think critically about how money laundering has used these fauxrencies and how crypto and bitcoin has risen in value in a pattern connected to the implementation of the Magnitsky act. Come again when you have an actual user [SOMEONE NOT ON THE SELL SIDE PLEASE] of the blockchain whatever who is not a drug dealer, a malware-spreading hacker or someone on an international money laundering sanctions list – speaking excitedly about how this has improved their business at a lower cost than the other alternative. You have to be either blind or a co-conspirator, to not see that the talk around bitcoin and ICOs has a massive number of bots operating to spread SELL SIDE TALK that is so predictable and orchestrated that it is laughable. THIS IS NOT GOING TO END WELL!!!
i appreciate your advice. thank you
I’m not sure which amused me more: the post or the response.
For me, the post. Hilarious.
Your best post in years.
Dude, you might be taken more seriously if you didn’t use “notes” as your pseudonym to hide behind.
In my view, it’s early to issue a proclamation. In my life I’ve not encountered a concept in the public domain that has so many facets representing such a diverse array of potential outcomes. I’ve come to accept that I fully comprehend — at this point — maybe 40% of the underpinnings of both crypto and blockchain, but am fiercely dedicated to the topic. I see blockchain, in part, as an extension of server virtualization (which sliced a physical server) to blockchain (which slices a data center). For crypto, I see a more natural exchange of value that may help us bypass the “bring your own lodging” form of slave relationships that people have with banks. As I look at projects like dock.io and peepeth, I see ways to move us to greater consciousness and responsibility for our own data sharing and monetization choices. In the near term, I believe the play is in helping companies attach business models that make sense to blockchain technologies because it makes too much sense for it NOT to be a good move.
> I see blockchain, in part, as an extension of server virtualization (which sliced a physical server) to blockchain (which slices a data center).Why virtualize servers? Except maybe for some tricky details about the legal details of software licensing, it’s not about “slicing”!!!I used virtual machines way back with CP67/CMS — e.g., for one use, wrote some software that scheduled the fleet at FedEx and literally saved the company from going out of business. CP67 was by accident IBM’s only good way to run a lot of important IBM software, e.g., PL/I which remains one of the best designed languages, in time sharing mode.Instead server virtualization is mostly about computer system management and administration. In recent years, the idea has also been about computer security. Virtualization can also contribute to reliability.The alternative to virtualization is “running on the bare metal”, and that is a very weak, nearly brain-dead, software environment.E.g., now a cloud server might have motherboards with two sockets and an Intel Xeon processor with 24 cores in each socket. So, that’s the bare metal. If you want to run your SaaS code on such a cloud provider, with your operating system of choice, and database, etc., then with the bare metal approach you get either all 48 cores or none of them. But with virtual machine, you can get just what you need while still being the only one running on the operating system configuration you selected.That there are significant connections with crypto applications strikes me as obscure to far fetched.
Without a set of meaningful use cases, it indeed is speculative investing. Nothing wrong w/ pursuing a highly speculative investment, as long as you acknowledge that is the case and can afford to do so. Value is exhibited when there’s a strong benefit orientation for an end user(s), and w/ crypto that has yet to surface in truly meaningful ways. Until then it is speculative investing, which one can say, in varying degree, is the case w/ any investment, but on a continuum crypto certainly is a lot farther from the center than most.
I think that you are misunderstanding Buffett. As Buffett once wrote: “Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” (from the Berkshire Hathaway Owner’s Manual).Buffett gave examples of assets that generate cash flows without selling them. Cryptocurrencies do not do this.Buffett *has* speculated in the past, such as when he bought silver, but this is an extremely rare departure from his investment philosophy, which is to only buy assets that generate cash flows and to only buy them at a discount to the intrinsic value of those cash flows.
And, for his second act, he uses the cash flows to make big bucks in the insurance business.
Buffett bought a ton of Apple stock this week. I have to wonder if he is evolving in how he sees investing, or if he believes that Apple is a value.
To me, Apple doesn’t have any continuing business as solid as, say, Coca-Cola. Apple’s continued earnings need a continuing stream of super successful products.For just the hardware itself, Android shows that can buy quite good hardware for much less than Apple charges.Well, Apple can build a pretty “walled garden” that can be somewhat attractive.Big opportunities in computing remain, but they are not much like the current iPhone walled garden.In short, Apple’s products age like butterflies. The products remain good, but the prices will have to fall enormously.So, buying Apple stock today is betting on new, big successes that today are nearly invisible. For such really new, exciting stuff, Apple is not the only strong candidate: There are also Microsoft, Google, Samsung, Qualcomm, and two guys in a garage.
Except your arguments actually support why he bought Apple — even though there are other products arguably as good or better, their success continues undiminished. So it’s the brand and the ecosystem which comprise the “moat,” rather than the hardware, which is why Buffett now feels like he understands the company (vs. other “tech” stocks).
Yes, Apple has a great brand; maybe they are the Tiffany of consumer electronics and computing.Coca-Cola also has a great brand.BUT Apple can’t keep up the big profits just by continuing to sell the current iPad, iPhone, etc. and, instead must come out with really new stuff. Coca-Cola just has to keep putting sugar, cinnamon, caramel, CO2, etc. in water in bottles the same way they have for 50+ years.So, what might Apple do? Uh, …, let me think …, okay, the electronic life! So, have lots of computing, software, wireless, all integrated, trusted, all trivial to manage, e.g., that “just works”, covering home, office, car and other travel, family, friends, career, education, training, news, information, search, medical, finances, with solid privacy, security, tie-ins, network effects, etc. E.g., on any Apple product, each document just comes with an Apple proprietary “header” that simplifies the work of a very powerful document search system!A good job with all of that would be the revenue stream and Buffett moat and could keep the big Apple doughnut building busy working hard for decades.E.g., for that electronic life there will have to be a lot of data communications, and for that Apple could have their own APIs, protocols, video, VR codecs, HTTP, HTML, Web browsers/servers, hardware, and technical support — e.g., apparently they want to start making their own chips, and not just because of patents from Qualcomm — and “own both ends of the wire”.Third party aps? Maybe, but only with the tight constraints of the Apple “walled garden”. Or, “Look, Ma, no malware, spyware, security backdoors, …, and swipe and double tap work the same on all the aps!!”.Their own chips? And maybe make their own sapphire screen covers, batteries, and do their own assembly, cloud server farm, e.g., here in the US. So, to borrow from Inspector Clouseau, they “Want to use the old vertically integrated ploy.”.As I said, there’s a lot to do in computing.But the iPhone, iPad, and Mac are not solid indications of a successful tie-in, network effect, own both ends of the wire, trust with your career, life, Tiffany quality electronic life future.I’m unsure if Apple or anyone in computing now could be a sufficiently good grand architect of such an electronic life “Take over everything ploy.” future.If Apple mentions they are using AI, then I start to see them as hype, like the miracle healing, regenerative, youth-giving powers of the oil of the turtle in cosmetics!!!With some irony, Apple could come to be the regimenting 1984 “Big Brother” in the famous Apple ad way back there!That “walled garden”, “take over everything”. 1984 Big Brother ploy is in strong contrast with the principles of open software, open protocols, open systems, etc. E.g., if have to have an Apple product to communicate with some Apple product at your physician’s office or pharmacy, then the EU right away will want the APIs and communications protocols to be open. If Apple responds that it is all on some proprietary Apple chips, the EU may not be satisfied. So, Apple could lease the chips, $50 per year per chip for a chip with Apple per unit marginal cost of $0.50?And not only the EU: The US has a history of using anti-trust to cut off at the knees companies — e.g., Microsoft, AT&T, IBM, Standard Oil — about to take over the world.Even if Apple pulls off such a big “ploy”, it is still much harder than what Coca-Cola has to do!A lot that I mentioned have baby examples going way back in Microsoft, Cisco, IBM, etc. So, broadly mostly the ideas are old and so far have never taken over the world but often have had some success. More generally, in total the technical parts of business are just awash in standards that permit products of different companies to work together effectively and because no one company can hope to do it all.For Apple to do it all, e.g., in their walled garden, is asking a lot. So, maybe there will continue to have to be a middle ground between some wide open Linux, TCP/IP, SATA, USB 3.0, LTE, x86, etc. and some proprietary Apple video codec, chip, communications applications layer, Objective C, etc. Then Apple would have to slug it out in that middle ground. For that Buffett might as well diversify and buy some of each of Apple, Microsoft, Qualcomm, Samsung, AutoCad, Adobe, Cisco, IBM (even IBM?), TSMC, Akamai, Applied Materials, Micron, Intel, Google, Amazon, Wal-Mart, and start a VC fund!!!
Apple is a luxury brand with an experience that cannot be duplicated.Same as Sees candies or DQ ice cream.
Both. And this process can continue. It’ll never be perfect, but it will be good enough to generate the decisions he needs.
Yeah, but he’s still missing the point about cryptoassets as he is dismissing them. They are protocol investments — a new animal altogether.
This is well put – he buys productive assets (cash producers) and loves to use the farm example.I think that crypto ends up being a service business and a highly fragmented one at that.As Fred says, crypto is both ‘hyper competitive and self commoditizing.’ You need a full time focus on that to pick winner and WB doesn’t do that type of investing.I think he is not going to look bad saying that crypto currencies will end badly – they will end badly enough for enough people that it will be supportable.
Yep, if crypto progresses to be something that looks like it will fit Buffet’s “cash flow-generating asset” criteria before he departs, after a period of research and consideration, he’ll be all over it.
That just may not happen as crypto replaceses fiat – which to my way of looking at things is poised to roll out much faster than we ever thought possible.
I’m inclined more to your way of thinking, but such changes potentially will take a lot longer than we think. The dotcom bubble lasted until around 2000. It’s take 18 years or so to get to where we are now, which is still pretty basic (but amazing in year 2000 terms!).
https://uploads.disquscdn.c… Exponential technologies have begun to interact with each other – as an example look at how AI has seeped into everything. See what happens when one exponential technology begins to interact with another -in this case DNA Sequencing. In reality all these emerging technologies have begun to interact with each other.
Yes indeed, and some things will move at an order of magnitude faster than even what we assume will happen, but humans have always dreamt of things that are not just around the corner, but much further away. And vice-versa.
Warren Buffets investment thesis of finding intrinsic value suffers a great deal in the emerging VUCA era. Technology life cycles are reducing fast and the short to medium term may be more important than the long term and it is Buffets holding for the long term which has compounded his selection skills. But this holding to the long term advantage, may have disappeared.Again, interest rates as Albert Wenger clearly explains in his book, Capital we are into an era of cost less capital or zero interest rates. Discounting cash flows at low such low boosts up the value of the firm without taking into account emerging risks.
IIRC from Buffett, he likes, say, Coca-Cola because (A) it’s the best of the current soft drink companies and (B) he is sure that in another 20 years soft drinks will continue to be popular. So, he’s sure the soft drink market will continue to grow for the next 20 years, and he is betting on the current leader. Simple. E.g., maybe Buffett guesses that all Coca-Cola has to do is continue to put sugar, CO2, cinnamon, caramel, etc. in water, run nice ads, and execute the current business model to do well — I can believe he is quite likely correct.IIRC, for technology Buffett is concerned that a lot of that fails to remain popular for even 20 months. So, it’s tough to have much idea how long it might remain popular and, thus, tough to know when to buy it and, then, when to sell it.So, Intel, TSMC, Qualcomm, Apple, AMD, Micron, etc. can fight it out at 10 nm, 7 nm, 3 nm, etc., but none of that threatens Coca-Cola!Besides, sorry, Intel: Do what you want at 7 nm, and likely I still won’t want it. Why? Because mostly your goal is to reduce power consumption mostly for mobile devices; I don’t really want a mobile device; and the mobile device I have I literally scream at it every time I use it because of the just awful keyboard. I’m pretty good at touch typing, but with this awful keyboard I commonly have to type a word 1-5 extra times to get it right.For my desktop computer, I have a good keyboard, and no way will any computer with a bad keyboard get me to change. Not a chance. The computer I’m building — earlier this morning installed Windows 7 64 bit Professional SP1 — uses the AMD FX-8350 processor at 28 nm. So, it draws somewhat more power than a processor at 10 nm. Okay by me.Intel, even if you go to 3 nm, no way will you get me to take seriously a computer with a bad keyboard! It’s astounding to go to 10 nm, but it’s stupid and intolerable to ask people to put up with a bad keyboard. Intel, with me, you are being blocked by bad keyboards and, thus, losing business to 28 nm!!!! Looks like there is a good opportunity in the keyboard business!!!!!!To me, nothing in crypto looks anything like as solid as Coca-Cola, or even Intel.That crypto helps enable “distributed”, I have to ask, (A) in what significantly new and powerful/valuable way and (B) why should I care? I see no reason I should much care about “distributed”. To me, pursuing “distributed” sounds like a quasi religious objective, e.g., like fighting “climate change”. To me, crypto looks like some technology still in search of some suitably important applications, a solution looking for a problem.So, for the investment criterion of the 20 year horizon, will anything like current crypto still be important in 20 years? My intuitive guess is, no. Coca-Cola is a solid business now. Is crypto? My guess is mostly no. Even if crypto is important in 20 years, is there any current crypto company that clearly has a good chance, like Coca-Cola, of being important in 20 years? My guess is that it would be tough to pick a crypto company now that has that 20 year promise.So, to me, that’s why Buffett-style investing wouldn’t bet on crypto now.Another example of goofy technology I don’t want — current highly engineered small car engines with a lot of horsepower and fuel economy. Instead, I like the small block Chevy and small block Ford engines. It was nice to give them electronic ignition. Throttle body or multi-point fuel injection is even nicer. For turbos with intercoolers, four valves per cylinder, variable valve timing, variable compression ratios, exhaust gas recirculation, no thanks; such technology looks expensive to buy, expensive to maintain, a pain to maintain, a reliability threat from being too new, and with questionable durability. No thanks. So, why such tricky engines? Sure, the big scam of the quasi religious horrendous, hideous threat of human caused GLOBAL WARMING. So, another wack-o objective creating new problems we don’t need.
Don’t bother, if he lives long enough (from today)… he will definitely come around.Remember, how he used to talk down on Apple but now he is taking a big position in Apple. He equally made such a bad call about the Internet. Let’s just say… valuing tech isn’t his playbook.
My thought as I read Fred’s post was “I wonder what Buffett’s thoughts were regarding internet in its frontier stage?” but have not yet researched this.Investment seems like a mix of looking forward while also looking back. What happens when there is no “back”?
“If I was teaching a class in business school, on the final exam I would pass out the information on an Internet company and ask each student to value it. Anybody who gave me an answer…I’d flunk them. (laughter)…I don’t know how to do it”. 1998.https://www.youtube.com/wat…These two guys wrote the book on knowing your circle of competence. Buffett has never been shy of saying “I don’t know”. He has never been shy of calling out his own mistakes, in almost excruciating detail sometimes. He talks about his “too difficult” pile…investments they don’t make because they are simply too difficult. I have seen zero evidence of Buffett and Munger lacking in self-awareness. If anything, they have self-awareness in spades.Munger – “You don’t have a competence if you don’t know the edges of the competence”.He is not saying “too difficult” about Bitcoin, he is saying something else.I believe Buffett has a point.
Fortune ran an article on Buffett around late 1999-2000 asking if he had lost his investing touch, for avoiding all those internet darlings. 9 months later he’s avoided the carnage. Mebbe he knew something about AoL and Yahoo the rest of us didn’t?
Buffet hit the nail on the head. Cryptocurrency is speculative. Investing involves using information about a business to buy into it with the fact supported assumption that it will grow in value. Buying Bitcoin is simply buying a currency with the hope that it will increase in value because it has increased in value before. Perhaps there are a few who are experts in cryptocurrency and have legitimate well informed concerns about fiat currency, so can argue that they are investing. However, the fact remains in either case it is hard to predict how cryptocurrency will perform at any given time.As for the rest of the article, it puzzles me that people will say that cyrptocurrency will decentralize online commerce when so many purchase cryptocurrency with fiat currency. People just don’t obtain Bitcoin and such from thin air. Aside from the few that have managed to mine cryptocurrency, most people still have to obtain fiat currency from a job and then exchange it for cryptocurrency. So in that case you still have a currency translation at some point leading up to the transaction.
You may well be “Mr. Perfect”, but boy are you not noticing the horse blinders that adorn your head! “Missing the boat” comes to mind…
Have fun spending your money on a crap shoot. You won’t see me insulting you regardless of whether or not it works out. But that is just part of being perfect. 😉
Ha ha! I appreciate the composed comeback. I started investing in crypto in 2014 and I have already cashed my initial investment many times over and am now playing with house money; so I’d say it has already worked out for me personally.
And that’s the same thing someone involved in a Pyramid-Ponzi scheme would happily boast about – whether they realize it’s a Ponzi scheme or not, right?And like a traditional Ponzi scheme, it’s the late adopters that get fucked – well, with the exception that in traditional Ponzi schemes, the stock broker has near full control over who gets money back and what return they’re getting.
Crypto assets are not a Ponzi scheme. To even say that means you are missing the boat altogether, which was Fred’s point with the post. Houses that used to cost $70,000 or less in 1970 are now worth in the millions in large urban centers, there are bidding wars to get them. Does that mean the last buyer got fucked? And about what you call the “boasting” — he said I would lose money in a crap shoot; I pointed out that it is not so. In new innovations periods, there initially is volatility, which will subside. It’s high risk, that is why one should only invest what they can afford to lose. Go and tell Mark Cuban that he was wrong for making his wealth on the back of a bubble and see what he says, if he replies at all.
A house is a physical asset, which is priced relative to its neighbour and region, etc. How does your analysis account for those specifics?
It was an example.Crypto assets will be valued based upon their current utility value. It’s a nascent space, it’s being worked on.Beyond the inevitable bubble, that advent will reshape the future.
Right, so you just avoided my question in your example – otherwise you’re previous comparison was apples to oranges.I’d love/appreciate if you read my other comment I posted here and comment/share your thoughts on its parts? https://avc.com/2018/05/is-…
Sorry Matt — too long to read. Gotta go at this point.
I’d recommend reading it, engaging when you have a chance. Happy to get into nuances in discussion.
I appreciate the effort to engage. I have long hours this week and a backlog of reading stuff on my Pocket. We’ll see 🙂
To say that crypto is gambling or investment is both correct and wrong on both points. As with the internet boom, there will be some scams, some successful projects with HUGE network effects that will do very well. There will be a bulge of others that morph into yet other projects, get swallowed, or just become part of the landscape. Then there will be the remaining projects that, as with any wave of investment chasing new technological advances, will fail, fall by the wayside, provide experiences and technology that fuel future projects.Good luck looking through a polarising lens at this subject. It will prove you wrong as the internet proved the people wrong who said it was just a fad and would quickly disappear.
Buffet missed the boom of Google and Amazon. He missed the nail then and he is missing it now again with crypto.
That’s a bad comparison, he’s also allowed to play it safe and provide higher returns over higher risk.
He is also allowed to shut up about things he doesn’t understand anything of.
It also mimics a Ponzi-Pyramid scheme more than a currency and a stock.There are too many ignored problems (some in part where centralization is the only solution for) with incentivized crypto-assets that make them not viable long-term; of course there are bad actors and the greedy who want these to succeed, and the global “decentralized” nature of this is why it has grown into such a beast.
Buffet does not invest in anything outside his circle of competence. I would argue that he has not expanded his circle of competence to include tech business especially internet 3.0. Perhaps, it is interest, ability or motivation or combination of these factors. Case in point – i have never seen him or his firm talking about how tech has evolved over the years and where it is headed. I have never seen him or his firm express their beliefs around innovations happening around tech, data science, ML or AI. Yes, these asset classes do not fit into it current thinking or frameworks in terms of how to think about valuing them . But that does not mean they have no value and it is speculation. It follows that Buffet stop pontificating about the absence of value of hypercompetitive decentralized networks.
Buffet does not invest in anything outside his circle of competence.This is exactly true. And one further point. Buffet or any smart ‘investor’ (note the quotes because investing often is gambling) doesn’t go where he has doesn’t have an edge or an advantage. That is exactly what people should be doing. You invest where you have an edge. You have knowledge or information that others don’t. Anything else is gambling. Sure often gambling pays off (I mean investing as gambling not casinos). But you need an edge to win over time. And if you don’t have a seat of the pants feel for what you are investing in then you will make mistakes. And you will lose.Buffet’s edge is that he has access to people, information and opportunities that others don’t. That is a huge advantage. He can get deals that others don’t even know exist. He can get meetings and information that others can’t.  And he has an organization setup for this that others can’t poach at least not easily. For one thing look at where he operates out of (similar to Sam Walton a version of ‘barefoot and pregnant’ <– see if you can figure that one out). This helped Steve Jobs as a similar example when he rolled out the iphone in 2007. He could get alliances that, say, Samsung would never be able to even with the same exact product.
We have a saying…..look around the table. If you don’t know the sucker it’s you.I don’t blame Warren Buffet for one second saying: I don’t like this game, and I call people that play it fools. Rational strategy. For him.I agree with your point completely.
LE:The early Speculators (Smart money convinced to fund BTC) are apart of a group of 1000 that control the majority of the market. That is beyond an advantage.We don’t begrudge those smart money players but the appearance of misrepresenting the crypto-currency market as an open platform with equal participation from the sell side of the same players isn’t healthy. We realize the original intent requires providing the benefit of the doubt and that has been earned. But what is occurring now doesn’t smell right.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
> innovations happening around tech, data science, ML or AI.”Data science” is a really big nothing burger except what was okay 50+ years ago. That stuff was occasionally useful 50+ years ago and it is occasionally useful now, but it’s in no significant way new or innovative.For ML/AI, that is nearly the same story — 90+% of what is being done in ML/AI now is also decades old and not at all innovative. Maybe tomorrow someone will come up with something new, powerful, valuable, innovative, etc., but don’t hold your breath waiting.The AI robots are not nearly as agile as a cockroach, don’t learn nearly as fast or well as a kitten, are never nearly as smart as a beaver, and are not anywhere near humans and don’t have any path to be.A fundamental problem of data science, ML, and AI being innovative is lack of any powerful methodology. There is very powerful methodology, but the computer science community people, even chaired profs of AI, don’t have enough background in pure/applied math to be innovative.
Buffett and Munger see the “mania” aspect of the crypto market at this stage and are sounding a warning that there will be extreme volatility near term If you can live with that, go for it. If they see a real health care move in the blockchain, they would come around.
They reacted to the “mania” of the internet boom in the same way, and missed out on a lot of the upside (and downside). When they reached a point where they could figure out what which businesses were going to give them what they wanted from an investment, they went straight in. Verizon, Verisign, Apple, IBM.
I think the alarming question for crypto-currency backers is why don’t people understand the value (and need) of cryptos. The VC community always look for companies that are easy to understand their value proposition…seems cryptos are not in this category. Decentralization is a good buzzword, as it may be “scalable”, “secure”, etc. If you guys don’t bring a compelling story that is EASY to understand and adopt, you will have problems.
It’s much simpler than this. Buffet doesn’t invest in f/x or gold… Stores of value. He invested in business that generate cash. Bitcoin is a currency, and he doesn’t speculate on currency.
You are probably right. However, my comment was not specific to Buffet’s article but the the whole cryptocurrency story. In order to be humble, I will say “I don’t understand the value of it”. Claiming “It is designed to create hypercompetitive networks that are self-commoditizing “, per Fred’s wording, is difficult for me to understand. So, if it’s difficult to explain the value to Buffet, John Doe, or me, it’s up to the ecosystem to show us the value. Until then, I am in a wait-and-see position
Safe to assume buffet understands given how simply and easily he explains his rationale. I think that’s a good measure for how to evaluate things like this. If you don’t get someone’s explanation, likely doesn’t make sense.
Could you explain the value of internet back in 1990?
Incentivized crypto-assets reflect a Pyramid-Ponzi scheme structure more than a currency or a stock.
Actually *not* true that Buffett doesn’t invest in F/X or metals. He has:1. Buffett buys Brazilian Real: https://www.reuters.com/art…2. Buffett buying Silver: http://community.seattletim…
That’s hedging, not investing. He obviously believes in insurance (hedging)
Don’t understand how you consider those things “hedging” as opposed to investing/speculation?
It’s hedging/speculating, not investing. You speculate when buying vacant land that you hope a developer will buy someday. You invest in an apartment building that cash flows. You hedge the US dollar by buying F/X, silver, etc.
Crypto people don’t have to make the story better to understand. It’s up to people to educate themselves and understand things better because the crypto train will keep going up and those like Warren Buffet that don’t understand it, will lose out on it. Warren Buffet understands nothing about new technologies. That’s why he missed out on Google and Amazon. So why would anyone listen to him when it comes to crypto ?
I think the parent meant that it is up to “crypto people” to make the story understandable to the people who will eventually need to find a use for this stuff if it is going to be a successful sector, rather than to investors who may or may not be missing a boat.Right now everybody I know (in my opinion very reasonably) sees it as a fun toy for people who are able to speculate on financial instruments. The people who are able to speculate find that exciting, because the toy is for them, and the people who aren’t find it uninteresting and mildly-to-extremely distasteful and irritating, depending on how they feel about speculators in general.The population of people who see it as a useful platform for the next wave of decentralized application development is very very small. Even the people who pay lip service to that are sometimes just ICO fraudsters.There is a lot of story-telling left to do if this is going to become a real thing. I think Fred is one of those doing the best job of this, but I also share the original commenter’s view that he sometimes seems to be preaching to the choir rather than the yet-to-be-converted.
They don’t understand it because it is too damn early. Who among us thought the Internet will change the world in 1993?The hope is that crypto assets can eventually produce value to the end-user through apps that run atop the decentralized infrastructure. These apps should hopefully deliver users smarter ways to get their jobs done that save or make money. These can be jobs ranging from saving files at lower cost, finding advice for complex purchases, recruiting talent and tracking the supply chain, to buying cheaper insurance and trading solar power.If crypto assets do not make end users’ lives tangibly better at scale over the next 5-10 years, yes, it would have failed, and Buffet might well be proven right.Until then, we need to be as skeptical of the pessimists as of the fanboys.
Why is the timeline for making end users’ lives tangibly better at scale 5-10 years from today?I remember thinking the same thing in 2012: that Bitcoin could be a big deal, but really needed to start finding a practical use in peoples’ lives over the next 5 years or so. In the intervening time, it has become clear that isn’t going to happen; that it will not be useful to people as a currency. Now people say it is useful as a store of value, but that’s not what it looks like to me (and apparently, to Warren Buffet); it looks like it has found its “use” in speculation.On the other hand, if we mark the start of the web with Tim Berners-Lee’s implementation in 1990, and the start of distributed ledgers in 2008 with the Bitcoin paper, we’re at about the same point the web was at in 2000. The blockchain world of 2018 does seem somewhat analogous to the web world of 2000: lots of tumult, lots of bad ideas, but some successes. Maybe there are analogies to Yahoo (Bitcoin) and Google (Ethereum). In the web timeline, by 2005 we knew it would live up to the hype (for better and worse), so maybe your 5-year timeline is right.On the other other hand, it was obvious that smartphones were world-changers within a few months.
Great comment. The blockchain hype seems akin to 1999-2000 internet, but the maturity of the underlying tech is more like early 1990s. There is a serious disconnect here which will likely lead to corrections. However, the possibilities presented by decentralization are immense and one would need to be extremely conservative and low-risk to dismiss them completely.We often try to rate people as right or wrong in their predictions, but the future is a constantly morphing distribution of probability outcomes and no one really knows with certainty. We would all be well advised to try to understand why others’ projections are different from ours and if it might be based on information or insights we do not have.
Just about everyone on this thread is missing the point that Buffett and Munger consider cryptocurrencies as a speculation because you are depending on what the price of the asset is going to do rather than what the underlying cash flows of the asset are going to do.Cryptocurrencies are no different than other commodities in this regard (oil, gold, currencies, etc.). You may have an excellent case that they will go up or down, but they consider it speculating nevertheless because there are no underlying cash flows and therefore no “intrinsic value” to calculate.
In short: It’s not derivative of anything.
Buffet doesn’t do commodities either.
Please! List some books for dummies like me to understand this new technology!
Andre Norbim:Start with NYT Reporter Nathaniel Popper’s book Digital Gold. It details the beginnings of this speculation.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
CONTRIBUTORS:They will delete any reference to what is occurring we will continue posting it.Read NYT Reporter Nathaniel Popper Digital Gold on what got crypto-currency mainstream.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
“You are right nor wrong because people agree with you.” Warren Buffett.
The fact than anyone with enough capital can buy “a farm, an apartment house or an interest in a business” relies on a very structured system of laws, ledgers, registries, political (governance) stability which are commonly trusted and tremendously expensive to mantain.Imagine the risk involved in a worldwide real estate portfolio which you manage from a central office, say in NYC, with properties you as a manager don’t actually see. What is the difference with a crypto investment in that case?From that point of view I can see a lot of comparative value (or fuel?) in crypto.
CONTRIBUTORS:They keep deleting our non spam because it doesn’t fit their narrative. We will continue posting the non spam post that is within the TOS posted by blog owner.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT
Investing in cryptos is more like investing in currencies. The value of a currency is derived from the underlying economy (and the monetary policy), not the “net income” or “free cash flow” of the country that issues it. It may be true that investing in currencies is more like speculating because unlike a real asset that produces earnings over time, currencies don’t produce anything. But I don’t think by comparing cryptos with currencies is degrading cryptos in any way.
The crypto – currency comparison degrades currencies and inflates crypto.The U.S. dollar is legal tender for 320M highly productive Americans. It is the only way to pay taxes to the American government. In addition to the right to tax these 320M people, the U.S. govt owns tons of natural resources and (very importantly) a lot of weapons with which to impose its will on the world (essentially take what it wants in the most dire case). The “app” built on the dollar is the U.S. (and arguably the global) economy.What killer app is built on any blockchain/crypto? What great power is backing your btc with taxes and the threat of force?
I haven’t read Berkshire Hathaway public filings in awhile, but I’d wager a nickel that they don’t hold any Yen or Euro, beyond the underlying forex exposure of the treasuries of their subsidiary operating companies (Geico, Coke, etc…). They know money is not productive, so they try not to hold it. In their defense, this is what i hear when they say buying crypto is not investing. It’s very much in line with his long held criticism of Gold as an investment. He sees crypto as another gold-like thing. He is missing how crypto could be more productive than a dull yellow metal of moderate electrical conductance by powering decentralize infrastructure. But he’s right about the obsessiveness in the analogy.The rat poison line on the other hand has no defense. That’s just a poor excuse for trying to make a point with shortcutting, lazy language.
The rat poison line on the other hand has no defense. That’s just a poor excuse for trying to make a point with shortcutting, lazy language.No it’s clever. It’s a way to get across something that he believes in in a way that he knows will be repeated and get widespread exposure. A eloquently written paragraph saying the same thing would not have anywhere near the same headline grabbing impact.So it’s not lazy it’s smart. If it is what he believes and wants to get across.  He has done a good job of doing so with that sound bite. Remember the ‘glove does not fit you must acquit’ and what that did for OJ.
Right. It’s a memorable line. I’m still chuckling.
This late rising west coaster read the entire thread and don’t have anything new to contribute so will keep my mouth shut on crypto. But i am in the middle of reading Buffett’s letters to shareholders from 1965-2017. It’s a fascinating read if anyone is interested: https://www.amazon.com/Berk…
It is clear from those words that Buffett sees crypto assets like a baseball trading card or some other form of collectible.No that’s not what he is saying. He’s saying it’s more like the Dutch Tulip craze. And your counter argument (that it powers things or will) doesn’t change that either. (Even though I do see your point and do not entirely disagree with you.)When people buy and trade art, autos, baseball cards, stamps, wine, watches or real estate there is a history of both the intrinsic and extrinsic value (‘my car collection’, ‘my art collection’, ‘I own multiple vacation homes’) and the (importantly) stability of price over time. And many of the collectibles give people a good feeling by simply owning.  Also a bit of aspergers involved as someone will like the fact that they own multiple items of the same category (or even just one ‘I own a rolex’). No question about that. I experience that feeling myself. I like owning multiple things in the same category. I like the fact that I have purchased multiple models of the same car over time.Study the distinction and you will see the psychology behind it.  Something to build social currency with others. If this were not the case why would people have wine cellars with thousands of bottles that they will never drink? (Arnold care to offer your thoughts?). Or a garage full of cars that they can show to other guys who come to their house? Or chef’s kitchens? Etc. I just renovated a bathroom in a small place that I bought that I will be renting. I already know that the extra money I am spending will not bring me enough extra rent to definitely justify the investment. However I have done this before and have found that I get the following by doing so a) I get a better quality tenant b) Nice things sell or rent faster c) Importantly I like the good feeling that it gives me to own quality things and things done right.In my brain that gives me a sense of pride that goes well beyond dollars earned. I can call this the ‘casket effect’. It’s when you go to bury a loved one and you actually care what the casket looks like even though you will only see it on one day and it ends up in the ground. It should be a ‘who cares’. But it’s not. At least when I went to choose one for a loved one. (I was actually surprised when that happened which taught me a bit about how some decisions are made irrationally).
Thanks Fred.I know the retail side pretty well but clueless on the institutional side so i listened to this special Saturday edition Unchained podcast with a bunch of institutional players talking infrastructure.https://itunes.apple.com/us…Fascinating but the net is that we are just getting started and the money wants in just a game of piece by piece bringing in larger and larger investors.Great listen.
a generational issue? They’re not young, and they’re not hungry, and they probably just don’t ‘get it’.I infer that they’re definition of ‘investing’ is the sure thing, of owning growing tangible assets, which become collateral for further ‘investing’.Or, maybe he does get it and is using his status to move the market.
Crypto 1.0 (e.g. BTC), and Crypto 2.0 (e.g. ETH) are based upon transactions, which have no intrinsic value, thus leading to Buffet & Munger’s bafflement regarding cryptocurrency prices.I gave a talk @ WeWork/Singapore last Thu (3rd May) about Crypto 3.0, which uses mathematical theorems that have intrinsic value. As an example, I contrasted Einstein’s transactions, which have no intrinsic value, and his theories of special and general relativity, which affect timing on GPS satellite clocks; without accounting for relativity, GPS errors accumulate about 11 km/day.2 takeaways from the talk:1. Theorems have intrinsic value; transactions do not have intrinsic value. 2. If Crypto 1.0 & 2.0’s Blockchain ≈ Yahoo, then Crypto 3.0’s IdeaGraph ≈ Google & Facebook’s Graphs3rd May slideshare: https://www.slideshare.net/…I will be hosting a similar talk on May 15th at WeWork/NYC:https://www.meetup.com/The-….As a work in progress, Crypto 3.0’s IdeaGraph incorporates Fields medalist Vladimir Voevodsky’s attempt to transform the foundations of mathematics – Univalent Foundations. If successful, Crypto 3.0’s IdeaGraph can 1. Protect Invention: transform the patent system to reflect Galileo Galilei’s mathematization of science2. Promote Invention & Innovation: soaring human imagination with machine intelligence
Nuffet: mam?….. sir ?! satoshi where is the bathroom?Nakamoto: what is this?Nuffet: USDNakamoto: ok yeah, its down the hall around the corner to the left, you can shit twice and leave.Nuffet: hey, how come you’re calling me nuffet?Nakamoto: just go fuck your self.
Thank you so very much for writing this post. Finally someone with enough social status has dropped the mic on Warren Buffet’s comment — who, like all of us, is not immune to be developing a blind spot. No one rides a horse these days to go to work, and those who laughed Henry Ford out the room are long dead. The data about the implications of crypto are out in the open for anyone to go beyond the biases and see for themselves.
I totally buy USV’s basic thesis that the value created by decentralized networks accrues at the edges — i.e. to the users — and not to the central intermediary (after all, in truly decentralized networks, there is none). But that’s precisely why I can’t take seriously the second part of USV’s thesis here: that decentralized networks are worth investing in — or founding, for that matter. There may well be a lot of value in such networks, but most of it is to the participants of the network, not to the founders or investors.Suppose I can build a network that scales well and generates a lot of value. At least to the extent I’m self-interested and rational, why would I want to build it as a decentralized project, where I and my team cannot capture any of the value? In other words, why would I want to build something that ultimately disintermediates ME, except maybe out of the goodness of my heart? And the same thing for investors: why would they want to “invest” in a project where potential returns can’t ultimately accrue to investors (assuming the project is truly decentralized and not merely invoking the label as a marketing ploy)?A serious (and sincere) question for you: if you could invest in a company that can scale its way to profitability through strong network effects (in other words, a company squarely in the ambit of USV’s original investment thesis!) or in an otherwise identical decentralized project, which would you invest in?
Why sell an iPone to people that let’s them make a ton of money doing deals?? Why sell internet access?Why sell pick axes to miners?
One capture value through the token economy. In a decentralised entity with an underlying token being used, the value of the token should grow as the underlying economy which the token is enabling, grows. Decentralisation gives certain unique properties to that token economy as it can surface each and every latent potential within that system or networked economy. Leave aside the security aspect of any competing centralised implementation.
“In a decentralised entity with an underlying token being used, the value of the token should grow as the underlying economy which the token is enabling, grows.”This claim has always seemed far too speculative to me.The problem is that the token is supposed to play two different roles in this system. First, it’s a “share” in the particular segment of the decentralized economy it enables. And yes, in this sense, the token’s value may well reflect the value of the economy it enables. But the token is also supposed to play another role: it’s what a user pays to access certain services within this decentralized economy. (In fact, it’s precisely on this second basis that tokens are supposed to evade classification as securities!) But in this sense, i.e. as a “utility” token, its price is simply whatever the market will bear for the utility it provides. And just because the decentralized network grows, it’s not like it can keep charging more for the same service. In fact, it may well be that network growth and token price bear an inverse relationship.
Some of the value which accrues is because of the calibrated scarcity built into the token design. A good design will have to be a balancing act between growth of the underlying eco system , the surplus value getting reflected in the token and the stability and security of the proposed offering.
Agreed, except for the last point. Non accredited US investors and Chinese citizens are excluded from most legitimate investment opportunities in crypto space.
Thank you so much for taking the time to write this Fred. I have been frustrated and sad that a smart person like Warren Buffet feels the need to make blanket statements disparaging all investments in decentralized network assets. I think it’s only a matter of time before he will learn more and start to understand this new kind of network value. I welcome his skepticism; it’s important. But I hope that opinions like yours will help him take his skepticism in a new direction and replace disdain with cautious curiosity.I see a lot of comments here following Buffet’s lead and discounting decentralized assets. Let me add my voice of support that I strongly believe in a decentralized future. I believe that a great deal of market value will shift from corporate stock share to network token. Networks _do_ have intrinsic value, because they are a machine with their own inertia. In a way, the value of networks is actually more “real” than the value of each company. Because the value of each company is dependent on the network’s infrastructure, not the other way around. Just as corporations have value because of their ability to create and harness networks, cryptographic tokens have value because they enable us to collectively build and control networks with a new kind of systematic agency that is otherwise impossible. This is a radical shift which will take people a long time to wrap their heads around.For those shouting that you 100% know something is wrong, maybe you can instead just say that you’re skeptical and you don’t personally believe in it. Maybe you just don’t see the big idea yet.
‘ Hyper-competitive networks that are self-commoditizing ‘ should be enough to keep Mr, Buffet away.He didn’t buy Apple until he saw the brand moat.He didn’t buy brands until Sees showed him the irreplaceable brand experience moat.Btw – Elon Musk is being an ass. Kudos to you for respecting Mr. Buffet’s age and track record.Obvious pot shot – will Elon produce candies like he produces Model 3s?
Side comment: Francine McKenna (@retheauditors on Twitter) has a long history as a critical observer of Buffett/Munger/Berkshire.She’s a great follow. Though I don’t always agree with her, I often learn something. I’ll be interested to see how her Berkshire predictions hold up over time.https://twitter.com/retheau…
Thanks for the tip. Trying to “listen” to a few different types of thinkers on certain subjects. Helpful to have recommendations from people I trust.
@annelibby:disqus is right that she is a great follow but sometimes the finance talk can be really ‘inside baseball.”, I find. Jargony.
Enjoyed this thread. I understand Buffet’s view that crypto (like Gold) cannot be valued as it lacks predictable cash flow and you cannot run a DCF on it. I also understand the attributes of crypto. I wonder though is it not possible to create an unlimited number of coins with similar attributes? Secondly, the hypothesis that crypto is the picks and shovels for the next gold rush is possible but it is then best valued as an option (which could very well go to zero or infinity). I stay interested but until I understand why the number of different coins (there are already what two hundred or more?) is limited will restrict my investment to buying and reading the Burniske book
One other point…real assets title and economic value transfer will always remain within the purview of local country’s laws where the consummation of a trade on a crypto currency may not mean much and may actually be illegal
And as far as the public is concerned the press focuses on stories of how these accounts are hacked, limitations on quantities that can be sold and how difficult their maintenance can be.
It took centuries to properly value options.
I understand Warren’s thinking, he will never bet in assets that he doesn’t understand. As we know he main invests in proven business models where he can see, or have a vision, 20 years upfront. I think, even he acknowledges your annalogy with AWS, probably he’ll mantain his point of view about holding crypto assets “..don’t really have anything that has produced anything.”. In a certain way he is right. Crypto does not have, yet, a real impact in people’s lifes only have the potential to do that in the future.
It sounds like you are beginning to wake up Fred. Congratulations!I have been berating you about this precise point incessantly. Over and over and over again I have, in a shrill tone, claimed that crypto is like Beanie Babies, but instead of a cheap stuffed animial, crypto is nothing (literally “no+thing”).Your eyes are open but you do not see.A farm produces food, clothes keep you warm, a car gets you form point A to point B. But a baseball card or a pet rock is merely a collectible. Once the fad dies so too does the value.Blockchain is an entirely different matter. A verifiable public ledger has value because it can provde useful information.I await your belated appology for implying I was trolling you a couple/few months ago when you should have engaged me in intelligent discourse. Perhaps you can see now that I was *not* trolling you but rather calling you out for—perhaps unwittingly—shilling the latest “pump and dump” scheme.
There’s simply too many ways to look at this from an investment point of view. One thing I’ve seen play out numerous times, the underlying technology doesn’t always end up where it was first intended, a new path emerges along the way, who knows…I see this as a directional investment, and it’s nearly impossible to stop this innovation, because the production of units scale and costs are marginally zero; my focus is on that level of understanding, and as a potential measure for value creation.
“Bitcoin has produced a transaction processing infrastructure that looks a lot like Amazon Web Services” this is not a statement that can be made in good faith. The Bitcoin blockchain has a limit of two transactions per second. It looks like AWS in the sense that a fish looks like a nuclear submarine because they go in the water.
Crypto-Currency seems useful for criminals and it uses ever increasing amounts of electricity which sounds like another bubble.Please state some concrete examples of where the blockchain is useful, and making a difference, other than speculation.
I’m not a mathematician, but I know enough to trust and follow the best math minds, and eliminating the dependency on increasing amounts of electricity for computation seems worthwhile, and Bram Cohen is the first I’ve heard who can get us out of this, looking into chia.net
Buffet admits he is not infallible – he missed Amazon. https://www.cnbc.com/2018/0…
I think crypto investing is essentially currency speculation as others have made the point.However, when a company uses a cryto-asset to build a profitable company on it, then investing in that company (by perhaps buying crypto-assets, and using those crypto-assets to invest in said company) is a legitimate investment.In short, cryto-assets are a currency speculation, but buying crypto-currency in order to buy crypto-companies could satisfy the buffett / graham school of investing.
Cryptocurrencies are like Janus’ faces. They have an investment/assets face and a medium of exchange/incentive face. Perhaps they are a new species that combine the two older species.Besides, I think no point to argue with Buffett and Munger, as they are not that familiar with new technologies.
Buying bitcoin as an investment is speculation. Buying it to drive down transaction costs, or to increase security is not.Buying dollars because you think they will increase in value is speculation. Buying them to lower transaction costs is not.I’m with Warren on this one. Investing because a crypto solves a transaction problem could be promising. Buying its currency in hopes someone will buy it at a higher value is something different.
Poor Charlie’s Almanac fan here. That said, it took Buffett 20 years to admit he made a mistake passing on Google. He stated he was fully aware of them in the very early years of Google, as Geico began spending an incredible amount of money on AdWords in the very early years. He was even pitched by Larry and Sergei and said no.
Buffett once called derivatives “financial weapons of mass destruction”, before using equity options at a later date. He said he wouldn’t invest in currencies, until he did. He steered clear of tech in the 90s but now is all-in on Apple. He evolves and probably regrets some of his pre-evolution language. There’s a good chance he’ll regret these comments some day but that’s who he is. I admire him because he can evolve on many things, but he doesn’t appear to be able to evolve from using colourful language to describe things he admits he doesn’t understand.
What is investment other than long term speculation?
There are factoids missing in the anti-btc /Crypto arguments, archaic thinking( not necessarily in the bad sense ) is just one: 2) Warren thinks: bitcoin converted to dollar, cashing in. Btc generation thinks the other way round.3) information has become universally accessible to millennials -or whatever they wish to call themselves. They think in a new paradigm. They use a new lingo (code) and belong to cults(internet cohorts) –thousands if not millions(trans-border, not firmly bound by religion, language , gender , politics etc) 4) they have a profound distrust in governments and “big money”–read Warren etc. They know –correctly–that coming from the other side of the railway line, they will never lay their hands on this ” Island Money” , “Institutional investment money” historic money, money in vaults, in property, in Panama. So-what do they lose if they bet on a dark horse, viral currency that can infect and paralyse the current system? In their minds it is aobsolete/exclusive/insiderknowledgebiased/ unfair financial hierarchy. They bet on a financial anarchy that will debase the current fiat to its intrinsic value= zero. So how big need their bet be? Not 1 btc , even 1/1000 btc will do , in an anonymous cryptovault. Warren et al knows that and will do everything possible to prevent it. This is just the start of a fascinating battle. There is a twitter thread about the collapse of the Assyrian empire within a few decades, I think 20 years. On threadbot. Essential reading for Buffet and his friend Charlie…
Isn’t Buffet painting with an overly broad brush here? If we eliminate every purchaser of cryptocurrencies who is speculating, we are left with a subset of people who find some utility in the currencies. I don’t know what percentage of the total this is in terms of individuals or in terms of dollars but I am comfortable with the durability of the utility. Whether the price is falling or rising, won’t this utility continue to imbue a quality cryptocurrency with relative value? Is that not investing when one purchases with the intent of leverage this utility in the future? It seems he finds the utility negligible.
Cripto-currency is indeed a speculation game and Buffet is correct. Blockchain is the underlying creation tool that produces value. All cripto-currencys (such as Bitcoin) are transferable value storage units that produce nothing. Through it’s security, blockchain applications can add value to other transactions thus actually “producing” something.
https://www.zerohedge.com/n… Something to reconsider, eh?
For any new innovation and disruption to happen we need early adopters and early investors (or gamblers). Some of those investors are legit and really see the future that this vague and not well understood innovation may bring to the world. They see the “diamond in the rough!!!” Mining for these gems takes more courage then comprehension of what the innovation will do for people (the ultimate beneficiary). Many times the mines are a bust and they move on.Do you think the early adopters and investors in internet and email protocols really understood the monumental impact it would have on the world or the tech for that matter? They didn’t – they saw an opportunity for future innovation, felt something in their gut saying “go for it”, and they jumped in – thanks to them for the internet and email.This type of investing is not for everyone but doesn’t mean we should knock it.ANGEL
Buffett doesnt even own an smartphone, why people listen to him when it comes to tech is beyond me
What value does crypto currency create? At its core, crypto currency is replacing TRUST in a single entity with decentralized alternatives. If you aren’t a criminal, how does this help you? What can you do with a distributed ledger that you can not do with a trusted third party? Anything that is possible with blockchain based technology is significantly easier to do using a trusted third party.The only beneficiaries of crypto currency are speculators and individuals involved in illegal activities.
Crypto has a marketing problem. I read this post. Twice. It’s a lot of words that don’t describe much.Once Crypto figures out how to describe itself so a lay person can “get it” then it will explode. It’s needs its Google moment.
They don’t need to come to Crypto, Crypto will come to them.
This was posted on HN and this is my reply to someone’s comment (https://news.ycombinator.co… there:I’ve been a long-time AVC commenter. It’s marketing speak trying to legitimize attaching an added cost of the Pyramid-Ponzi scheme of incentivized crypto-assets into a transactional layer.In the end it will cost less in the short-term (per transaction costs) and in the long-term (the unnecessary, unreasonable amount of wealth reallocated weighted towards earlier adopters) to compete not using blockchain for everything – especially not incentivized crypto-assets – as they’re banking on and investing in perpetuating an ecosystem for.Competition will exist to show the cost differences, however there will continue to be a strong and growing push by those who are already vested in and own any number of these incentivized crypto-assets, and the platforms/services that have tied themselves into them.It’s understandable that VC would enter the market once it gained enough traction, at least once the ecosystem matured enough, once there was enough hype, and gaps in the market were spotted by competent teams who were wanting to fill them, e.g. Coinbase as one example of USV’s investments; selling services during a “gold rush” is likely the safest bet and most profitable.Albert, another partner as USV has been evolving his understanding and has been working on a book called World After Capital – http://worldaftercapital.org/USV as a whole have been evolving a thesis related to decentralization, which I believe they’ve perhaps mispurposefully attributed to being solved by blockchain; the thesis and conversation that Fred posted around years ago was relating to the idea of the The Independent Web – my blog post on this from 7 years ago: http://mattamyers.tumblr.co… – “The Independent Web, How Can It Work?”The answer of trying to create collaboration by aligning everyone in a Pyramid-Ponzi scheme however is wrong and immoral IMHO, and there’s a better way – as even with decentralization you still need centralization for governance, as without it you allow bad actors to flourish – and with the current system of incentivized crypto-assets, existing/known bad money certainly has entered that ecosystem.Whenever I write responses like this to Fred or other people’s posts who seem all-in for incentivized crypto-assets, the responses are none-to-shallow in depth. And I have gone into much more nuanced detail in other comments relating to why incentivized crypto-assets are overall bad for society. Perhaps the most purposefully ignored long-term negative is that there is a tipping point of adoption – let’s say it’s at “40%” adoption – where after that tipping point those later adopters are simply realizing the added cost of the increasing cost per “coin,” and so they are no longer incentivized to collaborate. The danger here for society however is you now have up to “40%” of society vested into making sure this gets adopted fully by society, including any number of bad actors – who perhaps will have then hundreads of billions-to-trillions of dollars they want realized; this could be as subtle as enough politicians getting elected into government, or bribing existing, or of course the worst.The solution, if blockchain is a necessary technology to use, is to have all existing fiat currencies globally merge – and only when governments are ready and under no pressure or force (and with no lobbying efforts by incentivized crypto-asset groups trying to indoctrinate based on their biased desires or ask to not be regulated..) – into a single digital ledger/currency. And with this solution instead of “you” giving me cash in exchange for a digital asset, “you” give cash to that government’s mint and it gets converted into the digital ledger/removed from regular circulation; the conversion rate would likely only simply need to match going exchange rates between currencies – there will be some nuance to explore of course.(And I have to at-tag @disqus_1c3XLniQL2:disqus in my post because I like his attitude – hilarious)
I hear and appreciate both sides of the argument. It appears, however, that Mr. Buffett’s might be a bit stronger.Indeed, in the absence of reasonable indicators that reflect the future, tangible monetary value of crypto assets, allocating cash to them, in hopes of any return, is a form of speculation —this is so irrespective of how much one might eventually earn.Further, evidence of “producing” something is not evidence that something is reasonably valuable — “valuable” to the point where someone is willing to part ways with cash for it or because of it.And yet, even if there are ways beyond a DCF to value these instruments, if they are undiscovered and or not sufficiently understood so as to provide clarity and reliability, one is still engaged in speculation.But both things can be true: crypto instruments can produce enormous returns for their backers AND backing these instruments without a reliable way of discerning where, how much, and when cash will emerge is a form of speculation.
Hi Fred! I feel like there is a simpler way to settle the difference between you and Buffet. The argument he is making is that an investment can be expected to yield dividends or fruits. This is in fact a true distinction. It is certainly true that BTC does not yield fruit. But by the same token (sorry, couldn’t resist the pun), a $100 bill doesn’t yield fruit.BTC certainly isn’t an investment per se. It is currency.
Ethereum is processing over $166M worth of transactions every hour, around $4B per day, 53% of these transactions via the first wave of smart DAPPs. It is an immature, largely experimental platform, really only a few years old, and it isn’t close to being ready for mainstream adoption. Buffet and Munger, and the rest of the doomers need to have just a little more patience.
I was reading Buffett’s 1992 shareholder letter and found this quote. I thought I’d share it with you, Fred, as it might explain his feelings on Bitcoin: “What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock then its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation … .”
“…crypto assets will trade and be valued like currencies that underpin economies…”If that were true, would anyone be talking about it? Or fighting to see it recognized as an investment?The majority of people buying, talking about or interested in crypto currencies, are hoping they are buying a winning lottery ticket.
Just for fun, I decided to upload a lecture I gave recently on the design of CCs to my graduate database folks. This is an academic lecture to a bunch of Computer Science grad students from all over the world focused on teaching about the good and bad of bitcoin et. Al so they have a better idea of the design challenges. There’s also a lot of my views of things mixed in. Another student had given a lecture on the pure technical aspects. This was the last lecture of the semester so my philosphical diaspora was on full display. I even plugged Fred’s website…http://frankwmiller.net/vid…
It seems to me that Buffett sees investments as COWs that have to produce milk. He’s being doing it wildly successfully over the last 50 years. But when he sees crypto he asks himself: “Where’s the milk?”. Nowhere to be found… yet.
Who cares what he thinks. He is not an oracle. Do your own research and decide for yourself.
it is investing, in an understanding of a network’s utility value before the masses confirm that value.Buffet’s a ‘sure thing’ investor. He’s ‘after the fact’.
Fred I do agree with you that a lot of people including Buffet are missing the potential creation of a new internet and haven’t taken the time to understand what’s going on. I also don’t disagree in principle with what you say about VC investing opening up broadly to the population. But if the venture math ( investments vs. exits) doesn’t work with the current system why would it work if more capital accessed venture investments. Unless this new internet era results in the transfer and creation of unprecedented value, the average investor will most likely be paying the house to play. Some might make a killing either via skill or luck, sure.