Famed investor and Berkshire Hathaway chairman Warren Buffett celebrated his 93rd birthday on August 30. Throughout his long career, he has steadfastly adhered to a value investing strategy that bears some resemblance to the “buy and hold” approach typically associated with stocks. cryptocurrency.
Buffett’s focus, however, is on assets with strong earning potential and investing in companies and industries where he and his team have a deep understanding of the associated risks, competition, and advantages.
The question is whether this laser strategy can outperform Bitcoin (BTC) in the long run. Additionally, investors should question why one of the greatest stock pickers of all time currently holds cash and short-term bonds as the second-largest position in his portfolio.
An interesting example of his approach is Berkshire Hathaway’s largest holding, Apple Inc. (AAPL). Berkshire originally acquired the shares in early 2016, when Apple was valued at more than $500 billion, so the company was far from an early investor. Notably, Berkshire Hathaway continues to increase its exposure to AAPL in 2022, even though the stock has rallied more than 500% since its initial purchase. This speaks to Buffett’s commitment to a long-term investing strategy, regardless of recent price action.
Buffett downplays unproductive commodities as store of value
In a February 2012 shareholder letter, Berkshire Hathaway expressed concerns about the devaluation of paper money and discussed the limitations of gold as a store of value. It argues that gold lacks real utility, demand for industrial and jewelry uses is lower than production, and its price is largely driven by fear-based sentiment, which will only lead to temporary price increases. In contrast, investments in productive companies yield handsome dividends and returns.
Berkshire Hathaway also points out that whether the currency of the future is based on gold, seashells, or paper, people will always be willing to trade a portion of their income in exchange for goods and services.
Much to Buffett’s dismay, Bitcoin’s price soared 683% in the 12 months after his criticism of the viability of an unproductive commodity as a store of value. Moreover, in four years, Bitcoin has gained a staggering 9,014%.
In order to compare the performance of Berkshire Hathaway’s stock holdings with Bitcoin, this analysis uses three times to Simulates leverage to calculate Berkshire Hathaway’s stock performance. Location.
If an individual invested $1,000 in Bitcoin (spot) in early 2019 and took a leveraged long position in Berkshire Hathaway stock, the investor would observe a return of $7,020 for BTC and a return of $7,020 for Buffett Holdings $5,623.
Likewise, for an investment started in 2017, the price of Bitcoin would reach $3,798, while a leveraged long strategy using Berkshire Hathaway stock would fetch $1,998.
Apparent Inconsistency in Buffett’s Strategy Is Good for Bitcoin
It’s worth noting a potential hole in Buffett’s investing thesis: Berkshire Hathaway currently maintains a record $147 billion in cash equivalents and short-term investments, representing 18.5% of the company’s total market capitalization. That raises questions about whether it’s waiting for a better entry point in a particular stock, or whether it thinks a 5.25% return on fixed-income investments is satisfactory.
The situation underscores how even the most accomplished stock market investors can be wary of deploying cash. It also raises questions about whether some funds currently on the sidelines, including $5.6 trillion in money market funds, might seek alternative forms of protection if inflation picks up again.
Bitcoin may not be a perfect store of value, and its volatility has been a topic of concern. In addition, it must be admitted that Bitcoin has not yet faced a global recession, so it is too early to make a definite judgment.
However, the continued performance of Bitcoin’s price compared to Berkshire Hathaway stock suggests that investors are increasingly viewing it as a viable alternative store of value.
With that in mind, Berkshire Hathaway’s large cash position is a potential red flag for bitcoin skeptics. Bitcoin’s total market capitalization currently stands at $500 billion, suggesting its huge untapped potential to play a bigger role in finance.
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
