Berkshire Hathaway (BRK.A 2.73%)(BRK.B 2.45%) hosted its 2022 annual shareholders meeting on Saturday. It was the first in-person meeting since 2019. As usual, Warren Buffett and Charlie Munger discussed many key topics and offered deep insights.

In the opening remarks, Buffett praised the U.S. dollar as a means of exchange even during inflationary times, in part because it’s backed by the federal government. Without saying it, he seemed to imply that Bitcoin (BTC 2.11%) and its crypto alternatives will never replace the U.S. dollar because decentralized currency doesn’t come with the same guarantees.

To be fair, Munger — who never hides his aversion to cryptocurrency — wasn’t so subtle. In response to one question about inflation and what inflation-resistant stock to invest in, Munger said, “I got some advice for you, too. If your friendly advisor suggests you put all of your money into Bitcoin, just say no.”

However, toward the end of the question-and-answer session, Buffett and Munger were once again asked about crypto, and they let loose with commentary on the subject. Here’s why Buffett and Munger still dislike crypto, but that doesn’t mean it can’t be a good long-term investment for risk-tolerant folks.

Image source: Getty Images.

Buffett argues that Bitcoin is not a productive asset

Berkshire Hathaway is known for investing in traditional businesses that are easy to understand. The ideal business produces a good or service and sells it to customers for more than it costs to produce. In the process, it generates earnings. It uses extra profits to repurchase its own stock, pay dividends, pay down debt, or reinvest in the business. This is essentially how companies like Apple and Coca-Cola function as reliable passive income streams.

Berkshire looks for what it calls a productive asset, meaning something like a farm, a McDonald’s franchise, a mining company, or an apartment complex. Buffett said the following on the subject of productive assets versus cryptocurrency:

If the people in this room owned all of the farmland in the United States, and you offered me a 1% interest on all of the farmland in the United States, and the price is $25 billion, I’ll write you a check this afternoon. If you tell me you own 1% of the apartment houses in the United States, and you offer me a 1% interest in all of the apartment houses in the country, and you want whatever it may be, another $25 billion or something, I’ll write you a check. It’s very simple. Now, if you told me you owned all of the Bitcoin in the world, and you offered it to me for $25, I wouldn’t take it, because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rentals and the farms are going to produce food. If I’ve got all the Bitcoin, I’m back to whatever his name was who may or may not have existed. He could create a mystery about it, but everyone knows what I’m like, I mean, so if I’m trying to get rid of it, people will say, why should I buy Bitcoin from you? That explains the difference between productive assets and …….


Leave a comment

Your email address will not be published. Required fields are marked *