Author: Deepchain DCNews
Compiled by: Sister Shen
Twitter: DeepChain
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 often associated with cryptocurrencies.
However, Buffett's focus is on assets with strong profit 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-eyed strategy can outperform Bitcoin (BTC) in the long run. In addition, 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). The company originally acquired these shares in early 2016, when the company was already valued at over $500 billion, so they were far from an early investor. Notably, Berkshire Hathaway continues to increase its AAPL investment in 2022, even though the stock has risen more than 500% since its initial purchase. This illustrates Buffett's commitment to a long-term investment strategy, regardless of recent price action.
Buffett downplays non-productive commodities as a store of value
In a February 2012 shareholder letter, Berkshire Hathaway expressed concerns about the debasement of paper money and discussed the limitations of gold as a store of value. They argued that gold lacked real utility, had insufficient industrial and jewelry demand, and its price was largely driven by fear-driven sentiment, resulting in only temporary price increases. In contrast, investments in productive companies would generate substantial dividends and returns.
Berkshire Hathaway also noted that whether the currency of the future is based on gold, shells or paper money, people will always be willing to exchange part of their income for goods and services.
Sadly for Buffett, after he criticized the viability of unproductive commodities as a store of value, the price of Bitcoin surged 683% in 12 months. Moreover, over a 4-year period, Bitcoin has gained a staggering 9,014%.
To compare the performance of Berkshire Hathaway’s holdings to that of Bitcoin, we calculated the performance of Berkshire Hathaway’s shares using a factor of 3 to simulate a leveraged position, given Buffett’s focus on earnings and yield, which are fundamentally different characteristics from commodities like gold or Bitcoin.
If one had invested $1,000 in Bitcoin (spot) and initiated a leveraged long position in Berkshire Hathaway stock in early 2019, they would have observed a return of $7,020 on BTC and $5,623 on Buffett’s holdings.
Likewise, for an investment from 2017, it would have generated $3,798 in BTC instead of $1,998 using a leveraged long strategy in Berkshire Hathaway stock.
Apparent inconsistency in Buffett’s strategy is good for Bitcoin
It is worth noting that there is a potential hole in Buffett's investment theory: Berkshire Hathaway currently holds a record $147 billion in cash equivalents and short-term investments, accounting for 18.5% of the company's total market value. This raises the question of whether they are waiting for better entry points into selected stocks or whether they think the 5.25% return on fixed income investments is satisfactory.
The situation highlights that even the most accomplished stock market investors may have reservations about deploying cash. It also raises the question of whether some funds currently on the sidelines, including $5.6 billion in money market funds, will seek other forms of protection if inflation returns.
Bitcoin may not be a perfect store of value, and its volatility has been a subject of concern. However, it must be acknowledged that Bitcoin has not yet faced a global recession, so it is too early to make a definitive judgment.
Additionally, the continued outperformance of Bitcoin's price compared to Berkshire Hathaway's stock suggests that investors are increasingly viewing it as a viable alternative store of value.
In light of this, Berkshire Hathaway's massive cash position is a potential warning to those skeptical of Bitcoin, a market capitalization that currently stands at $500 billion, signaling its vast and untapped potential in the financial sector.
This article is for general informational purposes only and is not intended and should not be considered legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
