In yesterday’s post, we created a hypothetical employee who just started their new job at the SEC and was tasked with reviewing a couple of recent SEC alerts issued around crypto “investing” (here and here). The hypothetical employee was asked to review these two pieces, offer some thoughts, and start drafting some bullet points for the next investor alert. In today’s post, the employee’s journey continues. They had decided to read as much as possible about the subject, starting with Warren Buffett…
You get back to work and start with what positions Warren Buffett has taken on crypto. You already know he is not a crypto fan, but you want to understand and research it some more.
You already know a great deal about Warren Buffett. You start running through your memory bank and you recall his latest investor letter (2022). His return on investment, over a 57-year span (1965-2022), was exactly double what the S&P index had returned (19.8% vs. 9.9%). You are well aware that such a performance is extremely unlikely to be a stroke of luck.
Through your Buffet research you have learned even more about the investing sage. Warren Buffett has been writing letters to his shareholders since 1965. They are available for free on Berkshire’s website starting in 1977. These letters created much excitement amongst Berkshire shareholders over the years as well as people who were followers of finance and investing.
It goes without saying that Buffett is a very wise man. You make a note to yourself to learn about his life story later, but for now, you are focusing on his views about investing. You come across this short video, which memorialized his answer when he was asked what he thought about oil and gold. It will not be watched a zillion times, but it contains a great deal of wisdom. It might also explain why Bill Gates recently became the biggest owner of farmland. Remember, Buffett and Gates are also good friends.
This all seems like a random collection of thoughts, and you wonder whether something in particular links them all. Then you come across this:
“There is the linkage!” you say to yourself.
You wonder what else Buffett said about Bitcoin so you keep digging and find this:
The guy is certainly not a fan of Bitcoin.
You also want to know more about Charlie Munger, Buffett’s long time partner. You knew of him, of course. Through your research you now see how much of a straight shooter he is (“Bitcoin is worthless artificial gold”) and you want to listen to what else he has said on Bitcoin. A few clicks later and you come across this:
I see an artificial speculative medium that people are buying just because they think they can sell it to somebody else at a higher price, even though it inherently has no intrinsic value.
Speculative…No intrinsic value…The video is over, but those words keep rattling in your ears.
All of a sudden, you feel a little bit uneasy about all this. It is not that the SEC and Buffett/Munger are not trying to warn crypto buyers, it is how they are doing it. When the SEC warns people, it says things like: “not giving investment advice about Bitcoin,” or “investments in crypto asset securities being exceptionally risky and volatile”. When Buffett and Munger warn people, they are focusing on intrinsic value. “Both warnings seem similar at first,” you say to yourself. “But are they? We at the SEC are saying this is still investing. They are saying it is speculation. Are we wrong and they are right?”
This seems like a contradiction to you, and potentially a very important one. You feel like you need to reconcile these views somehow. You remember Buffett himself saying that he doesn’t understand the technology, so he is not investing in it. Yes, he's a great investor, no doubt, but maybe this Bitcoin thing is just not his particular cup of tea. You chalk it up to wise folks not being up to speed up with current technology and decide to call it a day.
On the way home, you are still thinking about intrinsic value though. It’s a nagging thought that would just not go away. You remember your favorite valuation book from your MBA days and you are pretty certain it had a blurb on this, so you make a mental note to yourself to re-read it when you come back to the office on Monday…
