
Warren Buffett: Stay Away From Bitcoin. It's A Mirage - rodrigocoelho
http://www.businessinsider.com/warren-buffett-bitcoin-is-a-mirage-2014-3
======
valarauca1
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
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.

~~~
obelos
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.

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norswap
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
> "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.

~~~
MartinCron
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.

------
api
"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
Do you think it's nutty for all the gold in the world to be worth $6 trillion?

~~~
ForHackernews
"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."

~~~
dualogy
"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.

~~~
ForHackernews
> Why hoard rice...

Why hoard gold? Inflation-protected treasury bonds can "represent wealth" in
an even smaller, more efficient manner.

> 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.

As he says, "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_ "

Even if you believe that in the future humans won't need to eat crops, or that
climate change will so damage the environment as to render US farmland barren,
the general case for owning productive assets over holding unproductive stores
of value seems like a good one.

~~~
dualogy
See my reply to mcguire above ;)

------
harshreality
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.

~~~
mcguire
The foundation of Berkshire Hathaway is insurance. If you think insurance is
simple, you're either much smarter than I am, you know a lot about things that
I don't, or you're delusional.

My understanding of BRK is that it is the business of resource allocation
(i.e. "management") for the purposes of investment. (Did I mention the
insurance thing?) I suspect that provides enough of an understanding of the
situation for Uncle Warren. I don't believe BRK is involved in currency
speculation as a primary business either. ( _" Primary"_: currency risks are
unavoidable. What I doubt is that Buffet regards them as a profit center.)

------
tzs
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
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?

------
mcguire
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.

------
VMG
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
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
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.

------
LouisSayers
What form of currency isn't a Mirage?

~~~
HarryHirsch
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
_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-e...](http://georgewashington2.blogspot.com/2011/08/average-life-
expectancy-for-fiat.html)

~~~
dllthomas
I expect that's dominated by "infant mortality", because situations that cause
currencies to die aren't fixed by rolling out a new currency. If that's the
case, it tells us very little about the safety of well established currencies.

~~~
atom-morgan
They aren't fixed by rolling out a new currency if they're just repeating the
previous process (printing money aka inflation, backed by nothing, etc).

~~~
dllthomas
Sure, but the ones rolling out a new currency here are bitcoin, which fixes
only some of the issues.

Incidentally "printing money" is not "aka inflation" \- it _causes_ inflation
_if_ the money supply grows faster than demand for the money but they are
different things.

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pyalot2
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
Imagine if we took all technology advice from 80-year olds.

~~~
dannypgh
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
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)).

