A Rare Misstep by the Oracle

We are big fans of Warren Buffett, the Oracle of Omaha. We talk about him quite a bit, we even dedicated an entire issue of this Journal to analyzing his 2020 letter (PDF) to his investors. 

When it seemed like people were taking shots at him (at varying degrees), because they seemed to be playing the game “Who will dethrone Warren Buffet?”, we urged people to show more respect and keep age out of the conversation. Ben Graham, the “Father of Value Investing”, was the undisputed king of investing in the middle of the 20th century, and his book, The Intelligent Investor, was the bible of investing. After all these years, it is still going strong. Buffett was Graham’s mentee and arguably the successor to Graham’s crown. 

When it comes to crypto, and in particular Bitcoin, Buffett has not been shy. He said that Bitcoin is ‘probably rat poison squared’. He said he will never own it and called it a delusion. Him, Charlie Munger and Bill Gates did a segment and it was a pleasure to watch. 

Not everybody agreed with Buffett’s strong views. Chamath Palihapitiya, who wants to build a Berkshire-like instrument, said Buffett is wrong about Bitcoin, implying that Buffett didn’t understand the technology, even though Buffett’s lens of evaluation, as also noted on the segment, was whether Bitcoin is an asset, not whether it is a technology. (Chamath’s views that Bitcoin is uncorrelated with the broader market did not hold true at the start of the pandemic, but that’s for another day.)

You may not agree with Buffett on everything, but we don’t think there are many people who would not think Buffett is a principled man. He always seemed to speak his mind.

It’s these kinds of people that create the biggest disappointments when they refuse to take a stand. With many, you know that they are not going to take a stand. They will just go on and on, dancing around the issue and will not give you a straight answer. Over time, you adjust your expectations; that becomes the norm.

We just would have never thought the Oracle of Omaha would do this, much less when he was asked about Bitcoin ...

On May 1, 2021, Buffett and Munger took the stage at the 2021 Berkshire Hathaway Annual Meeting. Here is what happened:

This is important, so we will also present Buffett’s answer in words. 

I knew there’d be a question on bitcoin. I thought to myself, 'Well, I’ve watched these politicians dodge questions all the time, you know, I find it kind of disgusting, but they do it.' But the truth is I'm gonna dodge that question because we probably got hundreds of thousands of people watching this that own bitcoin, and we probably have two people that are short. So we got a choice of making 400,000 people mad at us and unhappy, and, or making two people happy, and that's just a dumb equation.

This, right here, is the misstep. Buffett did not change his mind about Bitcoin. If he did, that would have been one thing. But no, he just refuses to speak his mind. And for what, exactly? Is he worried that he will make some Berkshire shareholders unhappy? What happened to this point of view?

All of that said, Charlie and I would be less than human if we did not feel a special kinship with our fifth bucket: the million-plus individual investors who simply trust us to represent their interests, whatever the future may bring. They have joined us with no intent to leave, adopting a mindset similar to that held by our original partners. Indeed, many investors from our partnership years, and/or their descendants, remain substantial owners of Berkshire.

Or this?

Berkshire’s unusual and valued family of individual shareholders may add to your understanding of our reluctance to court Wall Street analysts and institutional investors. We already have the investors we want and don’t think that they, on balance, would be upgraded by replacements. There are only so many seats – that is, shares outstanding – available for Berkshire ownership. And we very much like the people already occupying them.

And this?

The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and “stories,” they will not lack suitors. “Technicians” will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.

What about this?

Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample diversification and a minimization of transactions and fees. Still, investors must never forget that their expenses are Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts. When seats open up at Berkshire – and we hope they are few – we want them to be occupied by newcomers who understand and desire what we offer. After decades of management, Charlie and I remain unable to promise results. We can and do, however, pledge to treat you as partners.

Yes, this is exactly what Buffett was saying in his annual letter to investors just a couple of months ago. To us, it is extremely clear what he is saying. He is saying that we know what investing means, and we know that Bitcoin is not an asset. If people want to speculate, sure, but then, we are not for you. 

That was an admirable stance. But with his dodge when asked about Bitcoin, he somewhat reversed it. If Buffett thinks he will lose some of his investors over his tough stance over Bitcoin, so be it. Those are probably not the right ‘partners’ he felt so proud to have onboard anyway. 

In any event, Charlie Munger does not seem to be a “Dodger fan.” We knew he is not one who pulls any punches. On May 1, 2021, he did not disappoint:

Of course, I hate the bitcoin success and I don’t welcome a currency that’s useful to kidnappers and extortionists, and so forth. Nor do I like just shuffling out of extra billions and billions and billions of dollars to somebody who just invented a new financial product out of thin air. So, I think I should say modestly that I think the whole damn development is disgusting and contrary to the interests of civilization. And I'll leave the criticism to others.

“Contrary to the interest of civilization …” That was a very interesting way of describing Bitcoin. True, blockchain technology is certainly promising. It may even be true that Bitcoin was invented with good intentions and there is certainly a case to be made for digital currencies as they may very well be the future in finance. All that said, Bitcoin’s primary use case today is being a speculative tool where one hopes that there is a greater fool who will pay a higher price. That may not have been Satoshi’s intention, but the way it has evolved, we do agree it has created certain dangers to society.

Keep it on, Charlie. We need your voice. 

Are we being too harsh on Buffett? If so, please tell us, but this is a pet peeve for us. The concept of “strength in numbers” works much better with the Warriors. It doesn’t work well with bullies on the school ground. It doesn’t work when a bunch of Republicans decided to remove Liz Cheney from party leadership, by voice vote, no less, for no reason other than her speaking the truth about the elections. It doesn’t work when most of the world starts chasing a crypto dream for no reason other than speculative gains. It also doesn’t work when people start seeing sports gambling as a savior, when in fact there is still hope, and there is a better way.

In all of these cases, we need strong voices that can stand up. We need brave soldiers who speak their minds. We need fearless people who tell the truth.  

If we don’t do these things, reason gets crowded out, logic goes out the window and the bully, the liar, the person who does not respect the facts becomes more emboldened. The size of the mob increases, alternative facts become stronger and the truth gets suppressed even more. 

Make no mistake, this type of vicious circle is an existential threat for America. Don’t be complicit, there is simply too much at stake.