Verbatim on Bitcoin and cryptocurrencies
Warren Buffett was on CNBC on Monday and was asked about cryptocurrencies after he called Bitcoin "rat poison squared" at Berkshire Hathaway's annual meeting.
Question: What is it about Bitcoin that gets you so fired up:
Buffett: "When you buy a farm, you look at the crop every year and what prices are and decide whether it was a satisfactory investment. I mean, you look to the asset itself and what it produces for you. When we buy a business, we look at what the business earns and decide how we feel about it in terms of what we paid, but we are buying something that at the end of the period, we have not only what we bought but what the asset produced and when you buy non-productive assets, all you're counting on is whether the next person will pay you more because they're even more excited about another 'next person' is coming along. The asset itself is creating nothing.
"One of the interesting things is gold, if you go back to the time of Christ, look at how many hours of work you had to give up and you take it forward to now you'll found the compound rate is one-tenth or maybe two-tenths of a percent and then you have to secure it during that period. It doesn't produce anything. With productive assets you may pay too much but I bought a farm in the 1980s and every year I see how much it produces. I've got some corn and at the end of the period, I've gotten some significant income and I've still got the farm. If you and I buy various crypto currencies, they're not going to multiply, they're just going to sit there. We can trade it back and forth between us for higher prices but at the end of the day there's still one thing sitting there and it comes to an end."
Q: It's the 'greater fool theory', is that what you're saying?
Buffett: "Yeah, it's buying something because you expect the pool of people who want to buy it, because they want to sell it to somebody else, will grow. It's wonderful because it does create a rising price, it does create more buyers and it's better if they don't understand it. That's the other thing. If you don't understand it, you get much more excited than if understand it. If you buy a bond that's going to pay you 4% a year, you're not going to get any surprises, it's going to pay you 4% a year. But you can have anything you can imagine if you look at something and say 'that's magic'. They did it with tulips and they'll do it again. People like to speculate, they like to gamble and if you can get something half-plausible going on; if you had bought gold in 1942 and said 'we might lose the war had have to run off to some other country, so let's put our assets in gold', you would have less than a penny for every dollar you got from owning stocks. Now, somebody calls that a store of value, I think they're delusional".
Q: Goldman Sachs announced they were going to create a trading system around cryptocurrency, what do you think of that decision?
Buffett: "Well, they probably think that lots of people are going to get excited about cryptocurrencies, or maybe they already are, but they think there's money to be made trading it. I don't think they're expressing an opinion on the value of it. I would be very surprised if they top partners at Goldman are selling their Goldman stock and buying Bitcoin."
"If people think they're going to make money, it just draws people in. Even worse if they think somebody they know is going to make money and they're not. I could whisper something on this program about a non-productive asset. When you buy something at 15-times earnings or 20-times earnings there is something there. But when you buy a non-producing asset, there are no checkpoints."
Q: When I was tweeting your comments on Bitcoin this weekend, people were coming back with some pretty angry comments like 'I bought a house with Bitcoin', 'You don't understand it so you should shut up'
Buffett: The thing about investing, is that you're not interested in what other people think. If I'm investing in Apple, I want people to think Apple is terrible because they're repurchasing shares and it will go up faster. You don't defensive if you're buying something that produces something. You don't buy a farm and get defensive if someone comes along and says 'you shouldn't buy a farm'. You say, 'look I can watch the crops grow and sell them'. You get defensive when you look at it and it doesn't do anything, you're just waiting for someone to come along and pay you more. You're dependent on the mob growing, so people do get angry. And in response to the person who bought the house, they did the right thing, they sold the Bitcoin.
Q: You've been wrong on technology before. You didn't buy Apple until it was a $700 billion company.
Buffett: "The nice thing about buying Apple is that I don't care whether anyone mentions Apple again. With Bitcoin, they want more people to join the crowd so they've got every reason in the world to tout it. When I buy Apple, I know that Apple is going to repurchase shares. We own about 5% of Apple, but I know I don't have to do a think and with a couple years, I will own 6% without laying out another dollar. If it's cheaper my money goes even farther. There's no reason at all for me to encourage people to buy Apple."
