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ROOKIE Mistake: Bitcoin Shreds Doubters APART!

May 6, 2018 | Wealth Articles

You’ve got to be close to insane to argue with results, and no one has had a more glorious investment career than Warren Buffett.

He bought his first stock at age 11. He had amassed the equivalent of $53,000 by the time he was just 16. Teenage Buffett had a paper route, sold used golf balls and stamps, washed vehicles, founded a pinball machine business, and did his first turnaround by taking a horse track and morphing it into a lucrative playground.

One of the most incredible facts about him is his rejection from Harvard Business School. He spends 80% of his day reading. Said differently, the best investor ever is reading about 7-8 hours daily.

Buffett has the longest track record for beating the market.

As a shareholder of his Berkshire Hathaway, I’ll be attending the 2019 annual meeting held in Omaha, Nebraska.

I want to share with you some of his investment wisdom, which was revealed to me for the first time at the age of 21 and has shaped many of my decisions. Then, I want to show you why Buffett could never fully grasp the potential of cryptocurrencies.

Buffett’s Timeless Wisdom

Buffett focuses on profits, generated by lack of change. In other words, he searches for financial magic – companies, whose industries change quite slowly; therefore, the leading companies are able to generate consistent margins year in, year out.

The beverages industry is one such example, where Buffett’s company is the single largest shareholder of Coca-Cola. People drink today and will continue to do so tomorrow. The lack of change is what Buffett is after.

One of my favorite quotes from him is: “someone is sitting in the shade today because he planted a tree 20 years ago.” Another version of this quote is that the best time to plant a tree is 20 years ago, but the second best time is today. It goes to show that Buffett is a long-term investor, which is why he invests in industries, which are not going away or becoming obsolete.

His core business is insurance.

This company (GEICO), for example, has made Buffett, and thousands of other shareholders, hundreds of millions (perhaps billions) of dollars over the years.

The last philosophy I want to share with you is this: “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”

This plays into Buffett’s obsession with buying cheap. Paying too much is the surest and quickest way to find yourself in the bleachers, watching the game from afar.

A couple of days ago, Buffett warned that cryptocurrencies would experience a bad ending and that owning a cryptocurrency is not considered investing. It’s important to understand what Buffett means by this.

  1. Cryptocurrencies do not generate traditional profits – if you own shares of Disney and the company becomes private tomorrow because the stock market shuts down and you’re suddenly not able to buy or sell your shares, you’ll still get your cut of the profits, no matter what.

Cryptocurrencies, however, do not offer a benefit, if trading is banned. 

In other words, the only way to make money is by selling your coins to someone else at a higher price. This is inherently risky.

  1. Cryptocurrencies are not easy to evaluate – Since projects are not generating profits, it is extremely complex to determine how much a currency is worth.

We can only say that it is worth whatever it costs to mine it. The rest is a premium over that, which people are willing to pay.

 

The Other Side of the Coin

 

Buffett’s warnings are valid. He is advising that investors understand the difference between investing and speculating.

But, I want to remind you that Buffett also watched the Dot.Com era from afar and didn’t make a single penny from the rise of the internet. He is 87 and made the bulk of his fortune after he was already 60, which is important to understand and realize about him.

Technology, certainly a revolutionary one, isn’t within his realm of understanding. In fact, he doesn’t own a Smartphone or use email.

Therefore, Buffett’s warnings are well intended, but we must not take them at face value.

The fact is that he doesn’t mention blockchain technology and cryptocurrencies in the same breath. 

Like us, he knows that there is a difference because many of the businesses he owns (100 and counting) will begin utilizing blockchain soon.

You also need to understand the differences in risks between the cryptocurrencies themselves and the blockchain technology and its applications.

Lastly, and this is what Buffett is missing, in my opinion, is the revolution that having units of exchange, which governments do not control, offer.

If the free market keeps getting disgusted with government corruption, the future is rosy for the best projects.

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