This has something to do with Buffett’s investment philosophy. Not only does he not invest in Bitcoin, Buffett does not invest in all non-productive investments, but Bitcoin is the most criticized.
In CBNC’s interview with Buffett, Buffett himself explained in detail why he didn’t invest in Bitcoin, and he believed that Bitcoin is not an investment at all, just a game for latecomers to take over.
The interview explained in detail. I will extract a little bit and explain why he never invests in non-productive assets. This has something to do with Berkshire Hathaway’s business model.
The statement is placed first I personally hold Berkshire Hathaway’s stock and hold encrypted digital currency and mining machines. All the content in this article does not constitute an impact on Berkshire Hathaway’s stock and Bitcoin Investment advice for encrypted digital currencies such as coins.
For assets, whether to produce products can be divided into two types productive assets and non-productive assets. For example, a factory or a piece of land used to grow crops are all productive assets. Assets such as gold, jewelry, antiques, calligraphy and painting, which do not produce anything by themselves, are called non-productive assets.
Buffett himself often uses the farm as a metaphor. He himself bought a farm a long time ago.
If you want to buy a farm and you become a farmer, you will be concerned about how much grain the farm produces each year.
Investors must care about what the asset itself produces to investors. This is the normal logic of investment.
This logic, the way of pricing assets, has now become mainstream. The future cash flow discount model in the stock pricing model is the concrete algorithm of this idea.
In other words, an asset can continue to bring you cash flow or income in kind in the future. Based on the idea of discount, we can set a price for the current price of the asset. How to understand the idea of discounting, for example:
For example, I loaned money to Jenny, and Robert wrote me an IOU, with which I would return 100 USD in principal and 10 USD in interest after one year. Assuming that Jenny’s credit is very good, I have a tight hand now, if I want to transfer this IOU, how much should it be worth?
This note must not be sold for more than 110 USD, because if there is 100 USD in cash, then we don’t need to get it a year later. In other words, I have 110 USD in cash in the bank, more than 110 USD a year later. Therefore, it is irrational to buy this IOU at a price higher than 110 USD. (Such spectacles have appeared in the European bond market in a negative interest rate environment)
Is it possible that the price is lower than 100 USD? It is possible. Assuming that interest rates are soaring now, borrowing 100 USD, we can get 120 USD of principal and interest repayment in the future, then we spend 100 yuan to get 110 USD IOU, it is better to get a new IOU. If you spend the same 100 USD, you will get more interest of 20 USD in the end. So in the future, you can get 110 USD IOUs, and you can only sell them if the price drops below 100 USD.
If I lower the price of this IOU to 90 USD, I can get 110 USD in the future, which is equivalent to the buyer’s rate of return of over 22%, that is (110–90)/90*100%, which is better than spending 100 A yield of 120 (20%).
Therefore, if you invest in bonds, you may lose money even if you do not default, especially when interest rates are soaring.
And the current price (in this example, 90) of this IOU that pays the principal and interest of 110 yuan is the discounted price. The 110 yuan in the future is now worth 90 yuan.
Returning to asset pricing, how much grain a farm will produce for you each year in the future will be calculated as the discounted value, and the current farm’s quotation will basically tell whether the sale is worthwhile.
The output of the rice field is rice, and how much stone rice is used to price the rice field is a typical discount valuation method. The price fluctuations of agricultural products are avoided here, and it is better to use the grain itself to price the land. If currency is used for pricing, the future price fluctuations of crops must be considered, or food futures must be used to hedge.
The discounted price (value) is calculated based on how much output the asset can produce in the future. Then compare the discounted price with the price in the circulation market. Compared with the discounted price (intrinsic value), buy when the current price is underestimated and sell when it is overvalued. This investment method that uses price fluctuations around value is the approximate original meaning of value investment (in reality, the abundance of value investment is higher Much).
Having said that, it is natural to understand the basic concept of an investment payback cycle .
When the output of our assets reaches the price at which we purchased the assets, the time we use is called the payback period . If we buy a field with fifty stone rice, and hire tenant farmers to farm it. Then, after deducting the share of the tenant farmers, when the income of the asset owner, that is, the landlord, just reaches 50 cents, the asset has reached its payback cycle.
The payback cycle is uncertain, because we don’t know the specific output of each year in the future, but it can be estimated.
Is there any problem with the asset valuation model of discounted future cash flow?
Yes, it has two main flaws. One is that assets that are highly uncertain about future output cannot be valued. The other is totally powerless for non-productive assets.
For example, gold antique collections will appreciate if they are kept there for a hundred years. But the calligraphy and painting itself will not change more calligraphy and painting, and sometimes there will be a lot of imperial seals that are particularly uncultured and annoying. For such assets, this model is powerless.
Encrypted digital currencies such as Bitcoin are typical non-productive assets.
Therefore, for investors, there is only one way to profit from non-productive asset investment, which is to wait for the next person to appear and buy it at a higher price.