Warren Buffett, the celebrated investor and Berkshire Hathaway’s chairman, marked his 93rd birthday on Aug. 30. Over his extensive career, he’s adhered to a value investing strategy akin to the “buy and hold” approach seen with cryptocurrencies.
However, Buffett’s focus lies in assets with robust earnings potential, investing in sectors where he and his team possess in-depth insights into associated risks, competition, and advantages.
The question arises whether such a focused strategy can surpass Bitcoin’s performance in the long term.
Additionally, it’s worth pondering why one of the greatest stock pickers, Buffett, currently holds significant cash and short-term bonds as the second-largest position in his portfolio.
A notable instance of his approach is Berkshire Hathaway’s top holding, Apple (AAPL) shares. Despite acquiring them in 2016 when Apple was valued at over $500 billion, far from being an early investor, Berkshire Hathaway continued adding to its AAPL investment in 2022, despite the stock rallying over 500% since the initial purchase.
This showcases Buffett’s dedication to long-term investment strategies, regardless of recent price fluctuations.
In a February 2012 shareholder letter, Berkshire Hathaway expressed concerns about currency devaluation and the limitations of gold as a store of value.
It argued that gold lacks practical utility, with demand falling short of production for industrial and jewelry purposes.
Gold’s price primarily relies on fear-based sentiment, leading to temporary price spikes. Conversely, investments in productive companies generate substantial returns.
Unfortunately for Buffett, Bitcoin’s price surged by 683% in the year following his skeptical comments on nonproductive commodities’ value storage potential. Over four years, Bitcoin’s gains reached a staggering 9,014%.
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To compare Berkshire Hathaway’s stock performance with Bitcoin, considering Buffett’s focus on earnings and yield, an analysis simulated Berkshire Hathaway’s stock performance using a factor of three to mimic a leveraged position.
If one invested $1,000 in Bitcoin (spot) and initiated a leveraged long position in Berkshire Hathaway shares in early 2019, they’d have seen a $7,020 return in BTC versus $5,623 in Buffett’s holding company.
Similarly, for investments beginning in 2017, the returns would have been $3,798 in BTC versus $1,998 using the leveraged long strategy in Berkshire Hathaway’s shares.
Buffett’s investment thesis faces a potential loophole: Berkshire Hathaway currently holds a record-high $147 billion in cash equivalents and short-term investments, comprising 18.5% of its market capitalization.
This raises queries about whether it seeks better entry points into stocks or finds the 5.25% returns on fixed-income investments satisfactory.
This scenario underscores that even accomplished investors may hesitate to deploy their cash, prompting questions about whether funds on the sidelines, including $5.6 trillion in money market funds, might seek alternate protection against resurging inflation.
While Bitcoin isn’t a flawless store of value and its volatility is a concern, it’s important to note that it hasn’t yet faced a global economic recession.
Nonetheless, Bitcoin consistently outperforms Berkshire Hathaway shares, implying that investors increasingly see it as a viable alternative store of value.
Considering this, Berkshire Hathaway’s substantial cash position serves as a cautionary note for Bitcoin skeptics.
With Bitcoin’s market capitalization at $500 billion, it signifies untapped potential for it to play a more significant role in finance.
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