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These are the words spoken by Charlie Munger at the Berkshire Meeting three weeks ago. Buffett said he did not like cryptocurrencies either, but he is somewhat more moderate in his language.
The out-burst by Charlie was in response to the question: “Capitalization of cryptocurrency has approached that of Berkshire and Apple last year. And clearly the idea behind crypto will affect conventional banking groups where Berkshire is a shareholder. You always say you didn’t go into too much detail to obtain an understanding on cryptocurrencies. So what factors caused you to say that it’s a bubble?”
Buffett starts his answer by discussing two assets lacking intrinsic value because they don’t produce anything, gold and a cheque. If you’d bought gold at the time of Christ the compound rate of return on it might be a couple of tenths of a percentage point. It doesn’t deliver anything other than supposed scarcity, “because you can only mine so many. But so what? I mean, what does it produce itself?”
A cheque is a wonderful idea – it transfers funds – but that does not make the cheque itself worth a lot of money. If cheques were unavailable then “you’d do something else to transfer money”.
And the punchline:
“I think that anytime you buy a non-productive asset you are counting on somebody else later on to buy a non-productive asset because they think they can sell it to somebody for more money. And it’s been tried with tulips and it’s been tried with various things over time. And it does come to a bad ending.”
Buffett then contrasted non-productive assets with the Louisiana Purchase which was $15m for 800,000 or so of square miles of land – 20 bucks a square mile, 3 cents an acre.
“In the end you make your money on productive assets. If you buy a farm, you try to estimate what the crops, what amount per acre of soybeans or corn or whatever may be raised, and how much you have to pay the farmer that farms it for you, and what your taxes will be, and various things. And you make a conclusion based on what the asset itself will produce over time. And that’s an investment.”
The greater fool investor
“When you buy something because you’re hoping tomorrow morning you’re going to wake up, you know, and the price will be higher, the only reason you need more people coming into it than
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