It’s easy to understand why Warren Buffett is one of the greatest investors ever. His company Berkshire Hathaway has delivered outstanding returns for shareholders since Buffett took over the company in 1965. The stock delivered gains of 4,384,748% between 1965 and 2023, which equates to a compound annual return of 19.8%. The broader benchmark S&P 500 has delivered a very respectable 31,223% including dividends for a compound annual gain of 10.2%.
However, nobody, including Buffett, is perfect, and Buffett has acknowledged his investing mistakes before. For instance, Buffett in 2019 admitted to CNBC that Berkshire paid too much when it acquired Kraft, which it would merge with Heinz in 2015 to create Kraft Heinz.
In 2018, Buffett publicly scoffed at a new kind of investment that has since generated superb returns. Will the Oracle of Omaha eventually be right or could it go down as a major missed opportunity?
“Rat poison squared”
If you’ve followed Buffett and the late Charlie Munger, then you’ve probably heard the two talk about Bitcoin (BTC -7.11%), the world’s largest cryptocurrency. Buffett famously called Bitcoin “probably rat poison squared” at Berkshire’s annual meeting in 2018: “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending….If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.”
Buffett is certainly not alone. Many believe cryptocurrencies have no intrinsic value and serve as staging ground for bad actors due to their untraceable networks that may let criminals and terrorists complete transactions. However, since these comments, the price of Bitcoin has ripped higher:
Bitcoin Price data by YCharts
To Buffett’s credit, he said he would never short such a volatile asset, likely due to how unpredictable it is. Buffett also never bought Bitcoin so it’s also fair to argue that it’s not a mistake because he didn’t lose shareholders any money. You could also say Buffett made a smart decision by avoiding such a volatile asset. However, it’s rare to see Buffett be so wrong after making a call with such conviction.
Will Buffett eventually be right?
While Bitcoin is soaring right now and looks poised to eventually hit $100,000, Buffett could still eventually be right. After all, Bitcoin still doesn’t have intrinsic value, so it’s pretty tough to value or have conviction as one would have with stocks.
However, with each passing day, it looks more and more likely that Bitcoin is here to stay and be an attractive long-term asset, especially as it becomes bigger and accumulates more market cap. Bitcoin has survived multiple retreats and different interest rate environments. It is also increasingly being viewed as a hedge against inflation due to its finite supply. Some have even called the token a form of digital gold.
Finally, the launch of spot Bitcoin exchange-traded funds (ETFs) has increased the token’s liquidity and exposure to the broader population. Who knows, it may one day find itself in many retirement portfolios. President-elect Donald Trump’s recent victory has fueled a swarm of crypto buying, as investors believe Trump will usher in a better regulatory environment that will lead to growth for the industry. I am not sure exactly how far Bitcoin can run, but do believe it is a long-term asset investors can buy and hold.
Never underestimate Buffett. The 94-year-old may end up being right about Bitcoin, but right now his move looks more and more like a major mistake.
Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Berkshire Hathaway and Bitcoin. The Motley Fool has a disclosure policy.