It’s tempting to look at the rapid movements in the price of Bitcoin and other digital currencies and see the potential for a fast-track to riches. But I reckon putting money into Bitcoin is more like gambling than investing.
And multi-billionaire investor Warren Buffett isn’t too impressed with Bitcoin either. He said in an interview with CNBC earlier this year that “Bitcoin has no unique value at all.” And he went even further than that by saying: “It is a delusion, basically.”
Investing excitement without Bitcoin
I reckon it’s worth considering Buffett’s views about everything related to investing because he’s arguably the most successful investor the world has ever seen. Indeed, he must be doing plenty of things right.
But on Bitcoin, Buffett has been critical for a long time. According to CNBC, its archive has him also describing the cryptocurrency a “mirage” and “not a currency.” Although he did concede there’s potential in the underlying blockchain technology, but chucked in another dampener by saying the success of blockchain doesn’t depend on cryptocurrency.
So, I’m ignoring Bitcoin and the other cryptocurrencies completely, especially now, after so many of them have risen so far in price. I see huge potential for the price of Bitcoin and the others to crash back down to earth again, and there’s no reliable way to tell when that might happen.
Yet Buffett has seen plenty of excitement in his investing life without the need to stray from stocks and shares. From the start, he enjoyed big annual returns of more than 60% per year, according to Alice Schroder’s authorised biography about him, The Snowball.
With those kinds of annual return, he grew his capital of $9,800 to $174,000 by the time he was aged 26 — way back in 1956.
Because of inflation, that much money would be worth about $1.6m today. At that point in his investing career, Buffett considered retiring from paid work. He had certainly invested his way to enough money to support himself and his family for the rest of his life. He calculated at the time he’d need around $12,000 per year to live on, and the remaining capital would keep growing in the meantime.
Quality and value
And I’d invest like Buffett and aim for early retirement too. But how did he do it? He revealed a lot about his methodology and investing strategy when he once said: “The basic ideas of investing are to look at stocks as businesses, use the market’s fluctuations to your advantage, and seek a margin of safety.”
I’m sure many will recognise that philosophy as the teachings of Benjamin Graham, often called ‘the father of value investing’ after setting out his approach to investing in his books such as The Intelligent Investor.
At first, Buffett traded ultra-cheap stocks almost regardless of the quality of the underlying business in the hope of one last spurt up in the share price, into which he would sell.
Nowadays, he advocates focusing on stocks with high-quality underlying businesses and buying them as cheaply as possible, but recognising that they’ll rarely be selling cheap.
Instead, he looks for a fair price and typically holds onto his stocks for a long time. And I reckon that’s a good way to aim for early retirement now.
