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Warren Buffett: Stay Away From Bitcoin. It's A Mirage

39 points by rodrigocoelho 13y ago

api 13y ago
"But they also said the underlying technology may hold potential." That is exactly my position. The underlying technology is very compelling, but Bitcoin's present valuation is nutty. It's like the web. Pets.com and Flooz were silly, but the web was not.
- a3voices 13y ago
  Do you think it's nutty for all the gold in the world to be worth $6 trillion?
  - wnevets 13y ago
    yes.
  - konceptz 13y ago
    Not if all the gold in the world is pieced into 6 trillion chips. An obvious argument for any currency system based on a physical media limited by scarcity. Which is "artificially" true of bitcoin, another part of the viability of the system. But you already knew this, however I wanted to explore it on a similar high level idea.
  - ForHackernews 13y ago
    "Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."
    - danielahn 13y ago
      For the parent - this is what Warren Buffett said about gold (don't think that is obvious from just the quote being posted)
    - Thiz 13y ago
      And that cube of gold will still represent all the wealth of the world, whatever that is, at any given time. I pick the gold.
      - pavel_lishin 13y ago
        How does a large sample of an element represent all the wealth of the world?
      - dllthomas 13y ago
        Would you say the same of all the tin in the world? If not, what is special about gold? Are you confident that wouldn't change if all the gold were held by one individual?
      - mpyne 13y ago
        "This piece of paper represents $1,000 worth of gold bullion, whatever that is, at any given time. I pick the paper".
    - georgeorge 13y ago
      Excuse me, mr. Buffett, but that is not really compelling. A century form now, US cropland and all the Exxon Mobils in the world could be utterly devoid of value, I really wouldn't like to venture any kind of guess. And the gold? The gold might be equally worthless. A century from now we could well be manufacturing any element at will without giving it a second thought. Conversely, of course, in some unimagined scenario, the future of humanity could depend on a practical application of huge quantities of gold - your cube of gold might outvalue all other planetary resources combined. We just don't know.
    - dualogy 13y ago
      "The 170,000 tons of gold will be unchanged in size and still incapable of producing anything." I find it staggering that the calibre of a Warren Buffet can demonstrate so little capacity for sound thinking about value, wealth and wealth assets. Is the Mona Lisa worthless because it's priceless? What about a Picasso, do you expect it to produce crops or refine oil? When you fondle a French castle, do you expect it to respond? "I ask you, how can currency price gold? Indeed, no price will work!" ~ Another "how can paper currency that represents "the thoughts of a nation blowing in the wind" be used to value real money of ancient world class proportions, gold? It cannot! Any price you can think of will do, as in no price will work!" ~ Another Gold could absorb the worlds derivatives debt tomorrow in value and not a thing would change in the world, except many headaches gone. Gold could be managed at around production costs for many many decades since 71 and not a problem was found with this. Gold's currency price is meaningless, it's utility for "inter-generational" wealth preservation at a "giant scale" is priceless indeed. Because it is so unproductive, representing "great wealth" comes at no cost infringing on the "productive economy". Why hoard rice or industrial-strength silver to represent your wealth across currency regimes, social upheavals and technological fads and whims and political and market ups and down, when there is gold that can represent "much wealth" in very small physical chunks! Come on Warren, you gotta be kidding me. This piece must be intentional disinformation. He must have been walking around much old-world wealth in his life, and here he pretends "gold, I'm not getting it, gimme ExxonMobile shares any day" (or why not Enron if you're so into energy?). Then again, he prefers giving all his excess wealth to charity instead of doing the old-school "intergenerational family wealth" thing, truly American I suppose, so yeah, makes sense he see's no value in gold. Someone like Warren Buffet must truly believe that the American Dream will never expire, its currency never weaken in the eyes of the world, it's stocks always be cutting edge. At his age and with his life experience, can we fault him for that? Guess not.
- 6thSigma 13y ago
  The difference is bitcoins provide value for both merchants and consumers. Pets.com and Flooz on the other hand...
- ihsw 13y ago
  Definitely: the distinction needs to be made between Bitcoin the currency and Bitcoin the transaction network. The former's value is intrinsically fluid to the point where it's a weakness as well as a strength, however the latter's value is quite distinct. The BTC transaction network is reliably robust, spans the globe irrespective of national boundaries, quite secure, and fast. Some people call BTC the internet's gold, but that couldn't be further from the truth -- gold just sits there gathering dust. Gold has some industrial applications but at the end of a day it's just a store of value, whereas BTC encompasses the transaction network just as much if not more than acting as a store of value.
  - OmarIsmail 13y ago
    The rub is that the currency and the network are inextricably linked together. This is the underlying genius of Bitcoin and it's the main thing that most people don't appreciate. Put another way the value of bitcoin is the value of the network. How do you value the network is the big question.
  - maxerickson 13y ago
    The value of the transaction network is highly dependent on the exchange value. I'm not sure exactly what you mean when you call it distinct, but miners will certainly respond to changes in the exchange value, which may end up removing much of the vaunted security of the ledger (which removes interest, which makes mining less lucrative, which ...). (I don't necessarily think there is strong case for those scenarios, but it's pretty hard to decide at what exchange rate the thing becomes unstable).
valarauca1 13y ago
Warren Buffett is known for not investing in things he doesn't completely understand. He's the type of investor who only invests if he can completely wrap his mind around the business model at hand. Which is why he doesn't invest largely in the technology sector. Several times in the past he's consistently said tech companies such as; "Apple", "Google", and "Facebook" are far to risky of investments. He didn't invest in IBM until 2012.
- imjk 13y ago
  Do you have sources where he specifically says Apple, Google, and Facebook are "far too risky of investments?" Genuine question. I know he largely avoids tech stocks as they're not in his core competency, and he also justifiable avoided investing in the dotcom bubble.
  - valarauca1 13y ago
    CNBC from 2012 http://www.cnbc.com/id/47307200 http://www.cnbc.com/id/47307200
  - torbjorn 13y ago
    http://www.cnbc.com/id/47307200 http://www.cnbc.com/id/47307200 http://www.bizjournals.com/sanjose/news/2012/05/07/warren-buffett-thinks-apple-google.html http://www.bizjournals.com/sanjose/news/2012/05/07/warren-bu... http://online.wsj.com/community/groups/market-view-845/topics/warren-buffett-doesnt-see-apple http://online.wsj.com/community/groups/market-view-845/topic...
  - obelos 13y ago
    It's oversimplifying to say he avoids them because they're not his core competency; he avoids them because valuing them is not anybody's core competency. Their value comes from products that are too lacking in historical context to lend them the degree of reliability he's aiming for in an investment. He also seeks out companies whose stock has a history of producing ongoing income for investors in the form of a regular dividend. Tech companies rarely offer this. Without a dividend, the value an investor derives from the stock hinges solely on its current price. Dividend income diversifies this, providing a return even if the stock remains flat and buffering losses if you need to sell short.
LouisSayers 13y ago
What form of currency isn't a Mirage?
- kaonashi 13y ago
  Well, usually with state currencies, their worth is directly tied to the states ability to levy taxes (which is often very real). With independent currencies, no such obligation exists.
  - atom-morgan 13y ago
    Their worth is not tied to the government's ability to levy taxes. The currency's advantage over others may be that the government only accepts that form of payment but that still doesn't give the currency value. Look at any country with hyperinflation that still collected taxes and you'll see the true worth of the currency. The government's backing of a currency, even through taxes, does not inherently give it value as we've seen before.
    - kaonashi 13y ago
      Hyperinflation is a symptom of a collapse in output. Taxes bind the value of the currency to that output. If the output goes, also goes the value of the currency; we are in agreement.
- HarryHirsch 13y ago
  Let's face it: catastrophic devaluations as seen in Weimar Germany or Zimbabwe are actually rare and preceded by political instability. With currencies you know where you stand, the political history of a nation tells you.
  - atom-morgan 13y ago
    Rare? Quite the contrary. The average life expectancy of a fiat currency is 27 years [1]. This is across 775 currencies. [1] http://georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html http://georgewashington2.blogspot.com/2011/08/average-life-e...
pyalot2 13y ago
Warren Buffet said the same thing about Apple, IBM, Microsoft, Google, Facebook, Twitter etc. On the whole, he might be right about 50% of the time there, so, about as good as tossing a coin.
bberrry 13y ago
Imagine if we took all technology advice from 80-year olds.
- gdubs 13y ago
  To be fair, he's far from your run-of-the-mill 80 year old.
- dannypgh 13y ago
  Alan Turing would be 101 and Claude Shannon 97 if they were alive today. Our field has an ageist reputation in no small part due to comments such as yours, that think that age alone is somehow an indicator of competence.
  - 0xdeadbeefbabe 13y ago
    It's not a field it's a pop-culture just as Kay said (https://www.youtube.com/watch?v=FvmTSpJU-Xc https://www.youtube.com/watch?v=FvmTSpJU-Xc).
- SirensOfTitan 13y ago
  He's old, so he must be out of touch. Way to make sweeping generalizations. He's saying the same thing that Benjamin Graham would have said: Bitcoin isn't an investment, it's a speculation like art. Sure, you could make some money on it (and some have for sure), but don't delude yourself into thinking you're making a sound investment.
- 3am 13y ago
  Well, first it's financial advice, not technological advice. As other commenters have noted, BC is both a technology and a currency. Buffett is addressing the second. Second, he runs a $300B USD financial and industrial conglomerate that he's assembled in a singular way in the span of his own lifetime. Maybe he has insights that are worth something. Third, Kernighan is over 70. Ritchie would be, too. Knuth is 76. I mean, I have no illusions about changing your mind, nor do I care. I just don't want anyone who is reading your comment see it go unchallenged.
- 13y ago
norswap 13y ago
Despite the fact that he may not understand bitcoin fully (hint: if you claim you do, you're a fraud), his advice is sound. It's obvious even. The value of bitcoin has been driven up by speculation and most of the transaction volume are not people buying actual goods and services. While bitcoin may prevail (and if it doesn't, I'm pretty sure another crypto-currency will) but it needs to stabilize, it currently flucuates way too much. So the advice for investors to stay away from bitcoins, at least currently, doesn't seem unreasonable.
- brandon272 13y ago
  > "if you claim you do, you're a fraud" What do you mean by this? I always assumed I don't fully understand Bitcoin because I don't have a crypto background.
  - dllthomas 13y ago
    I assume what was meant was "all the implications", not "all the technical details." There probably are people who fully understand the latter.
  - MartinCron 13y ago
    It's possible that there are people who have both the crypto background and the economics backgrounds to "fully" understand bitcoin, but even then, the market is ultimately driven by humans and is an irrational and unpredictable beast. And if Buffet is wrong on bitcoin, so what? He's still Warren Fucking Buffet.
  - norswap 13y ago
    I was mainly thinking about the economics (nobody fully understand economics -- in fact predicting economic outcome is rare enough as to be celebrated in the economic world). But again, nobody fully understands crypto either: crypto algorithms such as RSA are considered secure because no effective attacks as been found against them despite many people trying, not because of some intrinsic properties or formal proofs.
- martindale 13y ago
harshreality 13y ago
Buffet and his business partner Charlie Munger have a simple philosophy: You can't make intelligent evaluations about everything, so focus on the (simple) things you can evaluate well, and pick the best of those to invest in. It works well enough as an investment strategy, assuming the political landscape affecting the moral view of businesses doesn't change radically, or at least it has worked well for the last ~half century. It also means you end up investing in candy companies, sugar water companies (Coca Cola), sugar tomato sauce companies (Heinz)... (and did they invest in a tobacco company? I don't remember, but Buffet was on record in the 1980's praising the business model of big tobacco, even though he later changed his tune.) Note the externalities and lack of vision: some major BRK investments are in companies that are rather bad for people's health. Buffet and Munger are very smart. They know their limits, and they are fanatical about avoiding cognitive bias. They're very ethical within the small domain of their business. However, they don't concern themselves with, or dream about, the big picture. They have avoided most tech companies, for good reason, but individual tech companies have flourished (e.g. Microsoft and Oracle, then Apple and Google, and now newer startups). Being too complex to be favored by Buffet and Munger does not necessarily mean you will fail. Seeing Buffet complain about bitcoin, I have to wonder why he's warning investors about something he doesn't understand (nothing against him; neither do I) rather than focusing on his core competency. The sad answer, I fear, is that Berkshire Hathaway is in the politics business now because their business has gotten too unwieldy (which they're honest about; they openly admitted long ago that returns would decline). Slowing the decline in their rate of return is their business now, and that means playing politics. Bitcoin, whether it's viable or not, could be a threat to the economic establishment. Therefore, it threatens Berkshire Hathaway, and rather than staying silent on the subject like he does about almost everything else he doesn't understand, he makes a public statement against bitcoin.
- adventured 13y ago
  For the same reason he dislikes gold I suspect. He benefits tremendously from the status quo dollar fiat system. He has stated it's a critical ability for the Fed to be able to step in and do what they did eg in 2009, acting as a supposed lender of last resort. A de-centralized money system would end or severely hamper that. Buffett has also frequently stated that he strongly prefers goods that produce (using everything from farmland to owning Coke as examples, as opposed to gold which doesn't produce, but rather is properly a store of value). From everything I've read over the years, I would say Buffett strongly prefers that central banks be able to step in and inflate / devalue currencies when it's deemed necessary. In a world of dominant bitcoin-like currencies, that ability pretty much goes away.
VMG 13y ago
It's one thing to say "I don't understand it, that's why I'm staying away from it", it's another thing to say "I do understand it, you should stay away from it and here's why", but I'm not sure why anyone would listen to somebody who says "I don't understand it but you should stay away from it."
rmason 13y ago
I've studied Warren Buffet for over thirty years. I love reading his annual investment letter. If you know anything about him you know about his refusal to invest in tech. Says he and Charlie Munger don't understand tech so they're not going to invest in it. He's best friends with Bill Gates but has refused to answer any tech questions even if they're about Microsoft. So suddenly he's comfortable commenting on Bitcoin? I have a hard time taking his criticism seriously. Mark Cuban bashed Bitcoin this week too. But Cuban owns Bitcoin and admits he's made money with it. While I disagree with his criticism at least he's making it with a bit of understanding. I think Warren Buffet is finally starting to lose it.
- differentView 13y ago
  This asshole Warren Buffett has also bad mouthed tulips, yet I doubt he knows much about botany. Tulips are due for a comeback any day now.
mcguire 13y ago
As an investment, Bitcoin isn't. It's no more an investment than storing rolls of quarters under your mattress. A Bitcoin in your wallet today is a bitcoin in your wallet tomorrow. An investment today is, at least potentially, an enterprise or a service or a product tomorrow. Bitcoin as a medium of exchange is more interesting, since it in many ways behaves as cash while still being digital. It doesn't have some of the downsides of credit, which is the only other convenient digital medium of exchange. On the other hand, as it stands, Bitcoin is not a very good medium of exchange, for the precise reasons that many people want to mistake it for an investment. It's too volatile, there is too much speculation; exposing your transactions to that kind of currency risk without really understanding what you're about is insane. Further, the deflationary behavior of Bitcoin ruins it as a medium of exchange in precisely the same way that feature makes it appealing as an "investment". A Bitcoin that will buy you a cup of coffee today might buy you a yacht next week; as soon as you realize that you have significantly less incentive to spend it on the coffee. Meaning that there is a disincentive to use it as a medium of exchange today and that same incentive will be there tomorrow, too.
tzs 13y ago
I think Bitcoin will not be a significant long term player in virtual currencies, because it does too much. It provides a pseudo-anonymous virtual currency, a pseudo-anonymous virtual commodity, a distributed transaction processing system, a distributed ledger system, a distributed analog to mining, and the various interesting uses people have come up using the block chain for things other than those things already listed. For most applications for a virtual currency or virtual commodity, only a subset of those are necessary, and for many applications some of them are undesirable, and for many applications there are additional features that would be good to have. I think the historical role of Bitcoin will be as a proof of concept demonstrating that a whole bunch of feature, some that were thought to be very hard to do in practice, are feasible to design into a system, but that in practice it will be replaced by several different systems each addressing particular classes of application and optimized for those applications.
- stevedekorte 13y ago
  You say only a subset are necessary. Necessary for what? Necessary to conduct banking as it exists today where we are faced with choosing between global cascading debt default due to a system that has no true demand deposits or hyper-inflationary spirals from ever larger (debt funded) bailouts of that system?

39 points by rodrigocoelho 13y ago

api 13y ago

"But they also said the underlying technology may hold potential." That is exactly my position. The underlying technology is very compelling, but Bitcoin's present valuation is nutty. It's like the web. Pets.com and Flooz were silly, but the web was not.

a3voices 13y ago
Do you think it's nutty for all the gold in the world to be worth $6 trillion?
- wnevets 13y ago
  yes.
- konceptz 13y ago
  Not if all the gold in the world is pieced into 6 trillion chips. An obvious argument for any currency system based on a physical media limited by scarcity. Which is "artificially" true of bitcoin, another part of the viability of the system. But you already knew this, however I wanted to explore it on a similar high level idea.
- ForHackernews 13y ago
  "Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."
  - danielahn 13y ago
    For the parent - this is what Warren Buffett said about gold (don't think that is obvious from just the quote being posted)
  - Thiz 13y ago
    And that cube of gold will still represent all the wealth of the world, whatever that is, at any given time. I pick the gold.
    - pavel_lishin 13y ago
      How does a large sample of an element represent all the wealth of the world?
    - dllthomas 13y ago
      Would you say the same of all the tin in the world? If not, what is special about gold? Are you confident that wouldn't change if all the gold were held by one individual?
    - mpyne 13y ago
      "This piece of paper represents $1,000 worth of gold bullion, whatever that is, at any given time. I pick the paper".
  - georgeorge 13y ago
    Excuse me, mr. Buffett, but that is not really compelling. A century form now, US cropland and all the Exxon Mobils in the world could be utterly devoid of value, I really wouldn't like to venture any kind of guess. And the gold? The gold might be equally worthless. A century from now we could well be manufacturing any element at will without giving it a second thought. Conversely, of course, in some unimagined scenario, the future of humanity could depend on a practical application of huge quantities of gold - your cube of gold might outvalue all other planetary resources combined. We just don't know.
  - dualogy 13y ago
    "The 170,000 tons of gold will be unchanged in size and still incapable of producing anything." I find it staggering that the calibre of a Warren Buffet can demonstrate so little capacity for sound thinking about value, wealth and wealth assets. Is the Mona Lisa worthless because it's priceless? What about a Picasso, do you expect it to produce crops or refine oil? When you fondle a French castle, do you expect it to respond? "I ask you, how can currency price gold? Indeed, no price will work!" ~ Another "how can paper currency that represents "the thoughts of a nation blowing in the wind" be used to value real money of ancient world class proportions, gold? It cannot! Any price you can think of will do, as in no price will work!" ~ Another Gold could absorb the worlds derivatives debt tomorrow in value and not a thing would change in the world, except many headaches gone. Gold could be managed at around production costs for many many decades since 71 and not a problem was found with this. Gold's currency price is meaningless, it's utility for "inter-generational" wealth preservation at a "giant scale" is priceless indeed. Because it is so unproductive, representing "great wealth" comes at no cost infringing on the "productive economy". Why hoard rice or industrial-strength silver to represent your wealth across currency regimes, social upheavals and technological fads and whims and political and market ups and down, when there is gold that can represent "much wealth" in very small physical chunks! Come on Warren, you gotta be kidding me. This piece must be intentional disinformation. He must have been walking around much old-world wealth in his life, and here he pretends "gold, I'm not getting it, gimme ExxonMobile shares any day" (or why not Enron if you're so into energy?). Then again, he prefers giving all his excess wealth to charity instead of doing the old-school "intergenerational family wealth" thing, truly American I suppose, so yeah, makes sense he see's no value in gold. Someone like Warren Buffet must truly believe that the American Dream will never expire, its currency never weaken in the eyes of the world, it's stocks always be cutting edge. At his age and with his life experience, can we fault him for that? Guess not.
6thSigma 13y ago
The difference is bitcoins provide value for both merchants and consumers. Pets.com and Flooz on the other hand...
ihsw 13y ago
Definitely: the distinction needs to be made between Bitcoin the currency and Bitcoin the transaction network. The former's value is intrinsically fluid to the point where it's a weakness as well as a strength, however the latter's value is quite distinct. The BTC transaction network is reliably robust, spans the globe irrespective of national boundaries, quite secure, and fast. Some people call BTC the internet's gold, but that couldn't be further from the truth -- gold just sits there gathering dust. Gold has some industrial applications but at the end of a day it's just a store of value, whereas BTC encompasses the transaction network just as much if not more than acting as a store of value.
- OmarIsmail 13y ago
  The rub is that the currency and the network are inextricably linked together. This is the underlying genius of Bitcoin and it's the main thing that most people don't appreciate. Put another way the value of bitcoin is the value of the network. How do you value the network is the big question.
- maxerickson 13y ago
  The value of the transaction network is highly dependent on the exchange value. I'm not sure exactly what you mean when you call it distinct, but miners will certainly respond to changes in the exchange value, which may end up removing much of the vaunted security of the ledger (which removes interest, which makes mining less lucrative, which ...). (I don't necessarily think there is strong case for those scenarios, but it's pretty hard to decide at what exchange rate the thing becomes unstable).

valarauca1 13y ago

Warren Buffett is known for not investing in things he doesn't completely understand. He's the type of investor who only invests if he can completely wrap his mind around the business model at hand. Which is why he doesn't invest largely in the technology sector. Several times in the past he's consistently said tech companies such as; "Apple", "Google", and "Facebook" are far to risky of investments. He didn't invest in IBM until 2012.

imjk 13y ago
Do you have sources where he specifically says Apple, Google, and Facebook are "far too risky of investments?" Genuine question. I know he largely avoids tech stocks as they're not in his core competency, and he also justifiable avoided investing in the dotcom bubble.
- valarauca1 13y ago
  CNBC from 2012 http://www.cnbc.com/id/47307200 http://www.cnbc.com/id/47307200
- torbjorn 13y ago
  http://www.cnbc.com/id/47307200 http://www.cnbc.com/id/47307200 http://www.bizjournals.com/sanjose/news/2012/05/07/warren-buffett-thinks-apple-google.html http://www.bizjournals.com/sanjose/news/2012/05/07/warren-bu... http://online.wsj.com/community/groups/market-view-845/topics/warren-buffett-doesnt-see-apple http://online.wsj.com/community/groups/market-view-845/topic...
- obelos 13y ago
  It's oversimplifying to say he avoids them because they're not his core competency; he avoids them because valuing them is not anybody's core competency. Their value comes from products that are too lacking in historical context to lend them the degree of reliability he's aiming for in an investment. He also seeks out companies whose stock has a history of producing ongoing income for investors in the form of a regular dividend. Tech companies rarely offer this. Without a dividend, the value an investor derives from the stock hinges solely on its current price. Dividend income diversifies this, providing a return even if the stock remains flat and buffering losses if you need to sell short.

LouisSayers 13y ago

What form of currency isn't a Mirage?

kaonashi 13y ago
Well, usually with state currencies, their worth is directly tied to the states ability to levy taxes (which is often very real). With independent currencies, no such obligation exists.
- atom-morgan 13y ago
  Their worth is not tied to the government's ability to levy taxes. The currency's advantage over others may be that the government only accepts that form of payment but that still doesn't give the currency value. Look at any country with hyperinflation that still collected taxes and you'll see the true worth of the currency. The government's backing of a currency, even through taxes, does not inherently give it value as we've seen before.
  - kaonashi 13y ago
    Hyperinflation is a symptom of a collapse in output. Taxes bind the value of the currency to that output. If the output goes, also goes the value of the currency; we are in agreement.
HarryHirsch 13y ago
Let's face it: catastrophic devaluations as seen in Weimar Germany or Zimbabwe are actually rare and preceded by political instability. With currencies you know where you stand, the political history of a nation tells you.
- atom-morgan 13y ago
  Rare? Quite the contrary. The average life expectancy of a fiat currency is 27 years [1]. This is across 775 currencies. [1] http://georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html http://georgewashington2.blogspot.com/2011/08/average-life-e...

pyalot2 13y ago

Warren Buffet said the same thing about Apple, IBM, Microsoft, Google, Facebook, Twitter etc. On the whole, he might be right about 50% of the time there, so, about as good as tossing a coin.

bberrry 13y ago

Imagine if we took all technology advice from 80-year olds.

gdubs 13y ago
To be fair, he's far from your run-of-the-mill 80 year old.
dannypgh 13y ago
Alan Turing would be 101 and Claude Shannon 97 if they were alive today. Our field has an ageist reputation in no small part due to comments such as yours, that think that age alone is somehow an indicator of competence.
- 0xdeadbeefbabe 13y ago
  It's not a field it's a pop-culture just as Kay said (https://www.youtube.com/watch?v=FvmTSpJU-Xc https://www.youtube.com/watch?v=FvmTSpJU-Xc).
SirensOfTitan 13y ago
He's old, so he must be out of touch. Way to make sweeping generalizations. He's saying the same thing that Benjamin Graham would have said: Bitcoin isn't an investment, it's a speculation like art. Sure, you could make some money on it (and some have for sure), but don't delude yourself into thinking you're making a sound investment.
3am 13y ago
Well, first it's financial advice, not technological advice. As other commenters have noted, BC is both a technology and a currency. Buffett is addressing the second. Second, he runs a $300B USD financial and industrial conglomerate that he's assembled in a singular way in the span of his own lifetime. Maybe he has insights that are worth something. Third, Kernighan is over 70. Ritchie would be, too. Knuth is 76. I mean, I have no illusions about changing your mind, nor do I care. I just don't want anyone who is reading your comment see it go unchallenged.
13y ago

norswap 13y ago

Despite the fact that he may not understand bitcoin fully (hint: if you claim you do, you're a fraud), his advice is sound. It's obvious even. The value of bitcoin has been driven up by speculation and most of the transaction volume are not people buying actual goods and services. While bitcoin may prevail (and if it doesn't, I'm pretty sure another crypto-currency will) but it needs to stabilize, it currently flucuates way too much. So the advice for investors to stay away from bitcoins, at least currently, doesn't seem unreasonable.

brandon272 13y ago
> "if you claim you do, you're a fraud" What do you mean by this? I always assumed I don't fully understand Bitcoin because I don't have a crypto background.
- dllthomas 13y ago
  I assume what was meant was "all the implications", not "all the technical details." There probably are people who fully understand the latter.
- MartinCron 13y ago
  It's possible that there are people who have both the crypto background and the economics backgrounds to "fully" understand bitcoin, but even then, the market is ultimately driven by humans and is an irrational and unpredictable beast. And if Buffet is wrong on bitcoin, so what? He's still Warren Fucking Buffet.
- norswap 13y ago
  I was mainly thinking about the economics (nobody fully understand economics -- in fact predicting economic outcome is rare enough as to be celebrated in the economic world). But again, nobody fully understands crypto either: crypto algorithms such as RSA are considered secure because no effective attacks as been found against them despite many people trying, not because of some intrinsic properties or formal proofs.
martindale 13y ago

harshreality 13y ago

Buffet and his business partner Charlie Munger have a simple philosophy: You can't make intelligent evaluations about everything, so focus on the (simple) things you can evaluate well, and pick the best of those to invest in. It works well enough as an investment strategy, assuming the political landscape affecting the moral view of businesses doesn't change radically, or at least it has worked well for the last ~half century. It also means you end up investing in candy companies, sugar water companies (Coca Cola), sugar tomato sauce companies (Heinz)... (and did they invest in a tobacco company? I don't remember, but Buffet was on record in the 1980's praising the business model of big tobacco, even though he later changed his tune.) Note the externalities and lack of vision: some major BRK investments are in companies that are rather bad for people's health. Buffet and Munger are very smart. They know their limits, and they are fanatical about avoiding cognitive bias. They're very ethical within the small domain of their business. However, they don't concern themselves with, or dream about, the big picture. They have avoided most tech companies, for good reason, but individual tech companies have flourished (e.g. Microsoft and Oracle, then Apple and Google, and now newer startups). Being too complex to be favored by Buffet and Munger does not necessarily mean you will fail. Seeing Buffet complain about bitcoin, I have to wonder why he's warning investors about something he doesn't understand (nothing against him; neither do I) rather than focusing on his core competency. The sad answer, I fear, is that Berkshire Hathaway is in the politics business now because their business has gotten too unwieldy (which they're honest about; they openly admitted long ago that returns would decline). Slowing the decline in their rate of return is their business now, and that means playing politics. Bitcoin, whether it's viable or not, could be a threat to the economic establishment. Therefore, it threatens Berkshire Hathaway, and rather than staying silent on the subject like he does about almost everything else he doesn't understand, he makes a public statement against bitcoin.

adventured 13y ago
For the same reason he dislikes gold I suspect. He benefits tremendously from the status quo dollar fiat system. He has stated it's a critical ability for the Fed to be able to step in and do what they did eg in 2009, acting as a supposed lender of last resort. A de-centralized money system would end or severely hamper that. Buffett has also frequently stated that he strongly prefers goods that produce (using everything from farmland to owning Coke as examples, as opposed to gold which doesn't produce, but rather is properly a store of value). From everything I've read over the years, I would say Buffett strongly prefers that central banks be able to step in and inflate / devalue currencies when it's deemed necessary. In a world of dominant bitcoin-like currencies, that ability pretty much goes away.

VMG 13y ago

It's one thing to say "I don't understand it, that's why I'm staying away from it", it's another thing to say "I do understand it, you should stay away from it and here's why", but I'm not sure why anyone would listen to somebody who says "I don't understand it but you should stay away from it."

rmason 13y ago

I've studied Warren Buffet for over thirty years. I love reading his annual investment letter. If you know anything about him you know about his refusal to invest in tech. Says he and Charlie Munger don't understand tech so they're not going to invest in it. He's best friends with Bill Gates but has refused to answer any tech questions even if they're about Microsoft. So suddenly he's comfortable commenting on Bitcoin? I have a hard time taking his criticism seriously. Mark Cuban bashed Bitcoin this week too. But Cuban owns Bitcoin and admits he's made money with it. While I disagree with his criticism at least he's making it with a bit of understanding. I think Warren Buffet is finally starting to lose it.

differentView 13y ago
This asshole Warren Buffett has also bad mouthed tulips, yet I doubt he knows much about botany. Tulips are due for a comeback any day now.

mcguire 13y ago

As an investment, Bitcoin isn't. It's no more an investment than storing rolls of quarters under your mattress. A Bitcoin in your wallet today is a bitcoin in your wallet tomorrow. An investment today is, at least potentially, an enterprise or a service or a product tomorrow. Bitcoin as a medium of exchange is more interesting, since it in many ways behaves as cash while still being digital. It doesn't have some of the downsides of credit, which is the only other convenient digital medium of exchange. On the other hand, as it stands, Bitcoin is not a very good medium of exchange, for the precise reasons that many people want to mistake it for an investment. It's too volatile, there is too much speculation; exposing your transactions to that kind of currency risk without really understanding what you're about is insane. Further, the deflationary behavior of Bitcoin ruins it as a medium of exchange in precisely the same way that feature makes it appealing as an "investment". A Bitcoin that will buy you a cup of coffee today might buy you a yacht next week; as soon as you realize that you have significantly less incentive to spend it on the coffee. Meaning that there is a disincentive to use it as a medium of exchange today and that same incentive will be there tomorrow, too.

tzs 13y ago

I think Bitcoin will not be a significant long term player in virtual currencies, because it does too much. It provides a pseudo-anonymous virtual currency, a pseudo-anonymous virtual commodity, a distributed transaction processing system, a distributed ledger system, a distributed analog to mining, and the various interesting uses people have come up using the block chain for things other than those things already listed. For most applications for a virtual currency or virtual commodity, only a subset of those are necessary, and for many applications some of them are undesirable, and for many applications there are additional features that would be good to have. I think the historical role of Bitcoin will be as a proof of concept demonstrating that a whole bunch of feature, some that were thought to be very hard to do in practice, are feasible to design into a system, but that in practice it will be replaced by several different systems each addressing particular classes of application and optimized for those applications.

stevedekorte 13y ago
You say only a subset are necessary. Necessary for what? Necessary to conduct banking as it exists today where we are faced with choosing between global cascading debt default due to a system that has no true demand deposits or hyper-inflationary spirals from ever larger (debt funded) bailouts of that system?