While a large number of private investors have become interested in Bitcoin over recent years, there may be a better way of generating significant levels of wealth in the long run.
Although the virtual currency may seem appealing to individuals who are aiming to ‘get rich quick’, the reality is the cryptocurrency faces an uncertain future. A lack of infrastructure and its limited size may mean it fails to replace traditional currencies.
In contrast, Warren Buffett’s investing methodology appears to be highly relevant at the present time. By seeking high-quality shares trading at low prices, holding them for the long run and not worrying about short-term price movements, it could be possible for an investor to generate high returns over an extended time period.
Buying opportunities
With global stock markets having endured a volatile period over the last year, there could be buying opportunities on offer. The global economy may face risks such as a slowing China ecomony and the impact of a rising US interest rate. However, its growth forecasts remain robust, and this could mean a wide range of large- and mid-cap shares are able to generate improving levels of profitability.
With the FTSE 100 having a dividend yield of around 4.4%, it seems to offer a wide margin of safety. Certainly, its yield was higher a number of weeks ago. But compared to its historic valuation, it seems to offer good value for money.
Holding period
While many individuals may look to buy Bitcoin, or any other asset, and sell as soon as they have reached a specific profit level, Warren Buffett prefers to hold for the long term. This provides his holdings with the opportunity to deliver on their competitive advantage and strategy, which can take many years to have its desired impact.
While taking profit on an investment is always tempting for any investor, determining the opportunity cost of holding a stock could be a useful idea. If there are better opportunities based on risk and reward elsewhere, then selling may be a worthwhile move. But in many cases, it’s worth sticking with ‘winning’ stocks, since they can generate continued growth even after a strong period of share price increases.
Market noise
While Bitcoin and a number of stocks are volatile, with their prices changing rapidly over a short period of time, it may be prudent for investors to adopt less involved role when managing their investments.
That’s not to say that they should fail to monitor them. Rather, it means that they’re not concerned about the day-to-day volatility of the stock market which, in many cases, can be random.
More important is the business performance of a stock, since it’s likely to eventually be represented by a higher share price. With Warren Buffett having enjoyed considerable success over a long time period and Bitcoin’s progress seemingly under pressure, the ‘Sage of Omaha’ could be worth following rather than investing in the virtual currency.