Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, 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 earnings potential and investing in companies and sectors where he and his team have a deep understanding of the risks, competition, and rewards involved.
The question is whether such an astute strategy can outperform Bitcoin (BTC) over the long term. Additionally, investors should be wondering why one of the biggest stockpickers of all time currently has cash and short-dated bonds as the second largest position in its portfolio.
An interesting example of his approach is Apple stock (AAPL), Berkshire Hathaway’s largest holding. Berkshire first acquired those shares in early 2016 when Apple was already valued at over $500 billion, so the company was far from an early investor. Notably, Berkshire Hathaway continued to expand its AAPL investment in 2022, even though the stock was up over 500% since it was first bought. This illustrates Buffett’s commitment to long-term investment strategies, regardless of recent price movements.
Buffet downplays unproductive commodities as stores of value
In a February 2012 letter to shareholders, Berkshire Hathaway expressed concerns about the devaluation of fiat currency and discussed gold’s limitations as a store of value. It has been argued that gold has no practical use as demand for industrial and jewelry purposes lags behind production and its price is largely driven by fear-based sentiment, leading to only temporary price increases. In contrast, investing in productive companies generates significant dividends and returns.
Berkshire Hathaway also noted that whether the future currency is based on gold, shells, or paper, people will always be willing to exchange some of their income for goods and services.
To Buffett’s chagrin, Bitcoin’s price surged 683% in the 12 months following his critical comments on the suitability of non-productive commodities as a store of value. Additionally, Bitcoin’s four-year gains were an incredible 9,014%.
In order to compare the performance of Berkshire Hathaway’s stock holdings to Bitcoin, while considering Buffett’s focus on profit and yield, which is fundamentally different from the characteristics of commodities such as gold or Bitcoin, in this analysis, Berkshire Hathaway’s stock performance was compared with a Factor three calculated to simulate a leveraged position.
Berkshire (BBRK.B) by a factor of 3 compared to the Bitcoin/USD index (orange). Source: TradingView
If an individual invested $1,000 in Bitcoin (spot) in early 2019 and took a leveraged long position in Berkshire Hathaway stock, the investor would have made a return of $7,020 in BTC, compared to $5,623 in Buffett’s holding company.
Berkshire (BBRK.B) by a factor of 3 compared to the Bitcoin/USD index (orange). Source: TradingView
Likewise, an investment as of 2017 would have resulted in $3,798 in BTC, as opposed to $1,998 using the leveraged long strategy in Berkshire Hathaway stock.
The apparent inconsistency in Buffett’s strategy is positive for Bitcoin
It’s important to point out a possible gap in Buffett’s investment thesis: Berkshire Hathaway currently has a record $147 billion in cash equivalents and short-term investments, or 18.5% of the company’s total market cap. This begs the question of whether the company is waiting for better entry points into select stocks or whether it thinks the 5.25% yield on fixed income is satisfactory.
This scenario illustrates that even the most experienced stock market investors may have reservations about investing their money. It also raises the question of whether some of the currently sidelined funds, including the $5.6 trillion in money market funds, might seek alternative forms of protection if inflation rises again.
Bitcoin may not be a perfect store of value and its volatility is a concern. In addition, it is important to recognize that Bitcoin has not yet experienced a global economic recession, so it is premature to make a definitive judgment.
However, the continued outperformance of bitcoin’s price relative to Berkshire Hathaway stock suggests that investors are increasingly viewing it as a viable alternative store of value.
With this in mind, Berkshire Hathaway’s sizable cash holdings are a potential warning sign for those skeptical of Bitcoin. With Bitcoin’s total market cap currently standing at $500 billion, this suggests significant and untapped potential to play a larger role in the financial landscape.
This article is for general information purposes and is not intended as, and should not be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.