Renowned investor and chairman of Berkshire Hathaway, Warren Buffett, celebrated his 93rd birthday on August 30th. Throughout his long career, he has remained steadfastly committed to a value investing strategy that bears resemblance to the “buy and hold” approach often associated with cryptocurrencies.
However, Buffett’s focus is associated with assets that have strong earning potential. It is also defined as investing in companies and sectors that have a deep understanding of competition and advantages.
Buffett or Bitcoin?
The real question is whether such a strategy can outperform Bitcoin in the long run, given its reputation. Furthermore, 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 this approach is Berkshire Hathaway’s largest holding, Apple (AAPL) shares. The company initially purchased these shares in early 2016 when the company’s value was over $500 billion, far from being an early investor.
It was remarkable that Berkshire Hathaway continued to add to its AAPL investment in 2022, despite the stock having already increased by over 500% since its initial purchase. This demonstrates Buffett’s commitment to long-term investment strategies, regardless of recent price movements.
Buffett’s View on Bitcoin
In a shareholder letter dated February 2012, Berkshire Hathaway expressed concerns about the depreciation of fiat currency and discussed the limits of gold as a store of value. They argued that gold had no practical use, demand for industrial and jewelry purposes lagged behind production, and its price was largely driven by fear-based emotions, resulting in only temporary price increases.
In contrast, investments in productive companies provide significant dividends and returns. Berkshire Hathaway also stated that regardless of whether the future currency is based on gold, seashells, or paper, people will always be willing to exchange a portion of their income for goods and services.
Unfortunately, within 12 months following Buffett’s critical comments on non-productive commodities as a store of value, the price of Bitcoin increased by 683%. Moreover, over a 4-year perspective, Bitcoin’s gains reached an astonishing 9,014%.
To compare the performance of Berkshire Hathaway’s stock holdings with Bitcoin, considering Buffett’s focus on earnings and returns, which are fundamentally different from the characteristics of commodities such as gold or Bitcoin, the stock performance of Berkshire Hathaway was simulated using a leveraged position with 3 factors.
If a person had invested $1,000 in Bitcoin (spot) and initiated a leveraged long position in Berkshire Hathaway’s shares at the beginning of 2019, they would have observed a return of $7,020 in BTC compared to $5,623 in Buffett’s holding company. Similarly, for an investment starting in 2017, using a leveraged long strategy in Berkshire Hathaway’s shares would have resulted in a gain of $3,798 in BTC compared to $1,998.
Warren Buffett’s Investments and Bitcoin
Paying attention to a potential gap in Buffett’s investment thesis could be important. Berkshire Hathaway currently holds a record $147 billion in cash-like and short-term investments, representing 18.5% of the company’s total market value. This raises questions about whether they are waiting for better entry points for selected stocks or find the 5.25% return on fixed-income investments satisfactory.
This scenario highlights that even the most successful stock investor may have reservations about deploying their cash. Additionally, the presence of some funds currently sitting on the sidelines, including $5.6 billion in money market funds, raises questions about whether they will seek alternative forms of protection if inflation rises again.
Bitcoin may not be a perfect store of value, and price volatility has always been a concern. However, it is necessary to acknowledge that Bitcoin has not yet faced a global economic downturn, making it too early to reach a definitive judgment.
Furthermore, the fact that Bitcoin has consistently outperformed Berkshire Hathaway’s shares indicates that investors increasingly see Bitcoin as a viable alternative store of value.
In light of this, Berkshire Hathaway’s significant cash position serves as a potential warning for those skeptical of Bitcoin. The current market capitalization of the Bitcoin market, which currently stands at $500 billion, signals significant and untapped potential in the financial world.
