Buffett, Dimon, and Munger on Cryptocurrencies
Intro: You are listening to the Crypto Core Podcast, exploring the fascinating world of cryptocurrency with your hosts Blake and Brandon De Shaw. Please visit us as www.cryptocorelabs.com.
Blake: Hello and welcome to today’s show. Today we are going to talk about the wizards of the investment industry, and discuss their thoughts, ideas, and predictions on cryptocurrencies.
Brandon: Yeah. Thanks Blake. We are going to delve a little bit in to some of the recent responses, and some of them have been pretty funny. From super investor Warren Buffett, his sidekick Charlie Munger at Berkshire Hathaway, and Jamie Dimon who is the head of JP Morgan and he has been kind of upfront on Bitcoin and cryptocurrency. And he has actually walked back some of his earlier comments which has kind of been hilarious to watch and listen to. Let’s start with Warren Buffet, Blake, and let’s queue up his recent response, I think he was on CNBC and he’s talking with Erin Burnett, I think is her name. And she’s kind of grilling him on Bitcoin and cryptocurrencies. Go ahead and let’s see what Warren has to say.
Warren (on audio): In terms of cryptocurrencies generally, I can say almost with certainty that that will come to a bad ending. Now, when it happens or how or anything else, I don’t know. But I know this – if I can buy long term puts, if I can buy a five-year put, every one of the cryptocurrencies, I’d be glad to do it. But I would never short a dime’s worth to it, you know, when you start talking…
Erin (on audio): Have you thought about trade in the futures? To take a negative position on Bitcoin?
Erin: You would not do that?
Warren: No. There no reason… I get into enough trouble with things I think I know something about. Why in the world should I take a long or short position to something I don’t know anything about? So we don’t have to know what Cocoa Beans are going to do or cryptocurrencies, we just have to focus on 8 or 10 stocks, businesses basically that we think are decent businesses. But I do think… I think what is going on definitely come to a bad ending. I mean, you’ve got virtually everyone. But I have a class… I have a lot in the school coming on Friday. The questions will be on Bitcoin. And I don’t know the answers.
Brandon: Okay. That’s kind of funny. He’s always said that he doesn’t really like technology and he stuffed Berkshire Hathaway with a lot of low-tech companies, companies that make boots and gloves and bricks and things like that. Berkshire-Hathaway actually started out as a textile company which is kind of funny. A very low tech and they had to shift into other things as a textile industry. Dropped dramatically. So he’s skeptical of course. Doesn’t quite understand it, which is fine. That’s how he has always been. And then his sidekick Charlie Munger, who’s a deep think but also not an extremely technically savvy guy, also had some commentary on Bitcoin and cryptocurrencies.
Becky (on audio): If you think private equity, I’m sorry, venture capital is potentially a place where you see bubbles.
Charlie (on audio): Well, Bitcoin and the other cryptocurrencies are also bubbles.
Becky: What tells you that? I mean, I’m just thinking of the millenials, the young investors who get so excited about something like this, what would you tell them? What would your message be?
Charlie: Well we’re excited because things are going up at the moment, and it sounds vaguely modern. I’m sure the computer science involved is difficult and interesting. So you can understand why they get excited. But I’m not excited… and go on somewhere else.
Brandon: Okay so there we have Charlie Munger calling Bitcoin a bubble and I respect of course. They are investing gravitas and their deep wisdom and knowledge about business, but they have said before and they always are saying now and they’re presented with Bitcoin and crypto that they just don’t invest in things they don’t understand. To a point they are right, Blake, you got to be very careful when you get in and play markets because you know that they’re rising and you’re going to play the rise in the market, not necessarily because you’re investing in very sound businesses. But that does not mean that right now we don’t have a whole flood of money coming into this space, and a rising tide lifts all boats. And if there’s a bunch of money coming into these businesses and there is a big, surging rise in prices, if you’ve got, I don’t want to say, if you’ve got, but I want to say is overall there can be profits and big fortunes made in that type of boat market that’s on the rise. However, you got to be careful not to hold out for top dollar. You have to cash out profits on a systematic basis.
Blake: And one thing that definitely helps out their argument is the number of old coins that are continually entering the market day in and out. If you look at some exchanges there are so many coins that probably end up either in a scam or will hold no value by the end of the year.
Brandon: Yeah, I mean, very much parallel to the Internet boom in the late 90s. I’ve heard some experts in the crypto space here. They say, I’ve heard anywhere from, “Hey we’re at 1993 in the Internet pre-boom,” or, “We’re at 1996,” I think somebody else said. So there’s this thought that it’s kind of a few years off until the masses really get into this and somewhat understand it. And the shifts of use of these currencies are more prevalent and widespread. And so we’re still in the early days, that’s what I’m hearing from the pros in the space. So if you are listening to this, you can count yourself fortunate that you’re in at least early on, if nothing else, just a fascinating time in business, because I truly believe that this is going to cause a big transfer of wealth. The changes in technology, time and time again through history, the people that are in using, making money and making fortunes off the old ways, they always say, “Hey be careful, be careful. This new technology, it’s dangerous and scary.” Well, the big transfers in wealth occur when these big technologies in business and in the world change. And the entire monetary system and everything that’s built around the monetary system I see being threatened in the current way of doing business. Banks, investment banking, contracts with blockchain – all these things are being threatened. And so you want to at least, if nothing else, at least be aware of what’s going on here, because I do see a massive transfer of wealth coming with this technology disrupting technology change of blockchain and cryptocurrencies and the main cryptocurrencies, the Bitcoin and Ethernet and Litecoin. So, the other big bad boy of finance that we have is Jamie Dimon from I believe JP Morgan, and he has come out and said that he’d fire anybody at the JP Morgan that was investing or even thinking about investing in Bitcoin and cryptocurrencies. But he has, well he softened his stance a little bit. He’s walked it back a little bit, but at the same time, he’s kind of bristly and bombastic about whenever someone brings up this subject. And it’s pretty clear that he’s I think kind of in denial, but also these guys, these big players realize that, “Hey if Goldman’s going to be the first one that get into it, but then we’d better be the second one, and figure out how we can make massive money.” Because these big bankers, they have smart people working around them and for them, and they know big transfers of wealth are coming.
Blake: Well I think what’s most interesting is I don’t know exactly when he said those statements, but in November now JP Morgan is considering through the future brokerage unit of CME group to provide its clients access to new Bitcoin products. So even now, some of these guys may have stances you can see them positioning themselves in the market to kind of take advantage of the cryptocurrency. And I think that’s an indicator that that is where the future is going.
Brandon: Yeah. Well one thing I want to go take a look at is that even though Warren Buffett and Charlie Munger, the super investors, aren’t going to be playing around in the crypto space, you can still in way, get their advice on investments in this space. And what they came up with to that underlying and underscores in their investment philosophy is what’s called the Four Investment Filters. And you can actually still apply this to cryptocurrencies, and ICOs and businesses that are springing up in this new industry, blockchain companies. And you can apply the Four Filters at least in an initial way to these things before you are in any way invest in them. So the Four Filters that they used for their investment philosophy. The number one filter is a business we understand. And so you can see why they’re automatically just throwing this out and saying, “We just don’t get it. We don’t understand it. This is something we’re not going to do.” So number one filter, business that we understand. Number two filter: favorable, long term economics. They call it sometimes ‘durable competitive advantage’, and so that’s like the, kind of for a long time Coca Cola had this name brand and attitude associated with it. And the red of Coca Cola, they had this some sort of favorable advantage and feature that gives them a long term edge, and any competitor would have to spend a lot of money to get into that. One of the things that comes to my mind is the name brand recognition of Bitcoin right now. And even though there are critics of it, and they say in theory there’s a much better cryptocurrency and backbone for everything, Bitcoin still has the name brand recognition. And that is tough to deny. Number three filter: able and trustworthy management, first-class management, and a lot of times on these I see a white papers another companies in the space, you can read about their management. And a lot of them there’s not going to be a lot of really well-known names, but in a lot of cases, you can see that these guys have at least been in the space maybe for a while, or a staff their team with people that they have been in a space for a while. Number four filter is a sensible price tag available at some sort of reasonable price. You’re not greatly, greatly overpaying for the coin or for the stock in the business, or what have you whatever might be invested in. And so it needs to be had for a reasonable price. So the Four Filters Warren Buffett and Charlie Munger came up with, you can still apply in this space even though they won’t be. Understandable business, enduring competitive advantage over a long term, good management, and then available at a reasonable price. So, Blake, what else do we want to talk about this episode? Any other news from the big wizards?
Blake: I think the biggest indicator, the biggest thing we should be looking for is, even though they’re saying these things, and that was great the Four Filters of Investing, it’s amazing how that works exactly with cryptocurrency. But it’s kind of keeping our eyes out for what these financial firms are doing. I can’t remember the name of the coin right now, but I know some of these. The banking industry wants in on this. I think right away they were trying to say that they will fail, they were hoping that it was going to fail, because they don’t want to lose control. And I think now they’re starting to have to accept cryptocurrency for what it is, and the next move is now to watch them to get into it themselves, by either kind of regulating the coin themselves or by not quite the decentralized regulation that Bitcoin and Ethereum run on. We’ll start seeing more centralized coins, maybe necessarily for-profit coins, and I think we’re already seeing coins pop up, and I think that’s important to keep our eyes out.
Brandon: Yeah, because we have to realize that this is a vastly growing market. There’s lots of money coming in and investment coming in from people who have been watching this space for a while, me included. And the masses are going to be brought in by mutual funds and things like that. The big, big groups of money were those people, the masses may not even be super aware of this. I still get questions from my friends on what Bitcoin is and cryptocurrency. But at some point, as these currencies become more and more adopted, the shift in attention will come. And you when these big, big players that manage the indexes and the mutual funds, then that’s going to be an interesting time.
Blake: Yup. And the free market right now seems to be sorting out its problems. For example, earlier off mic we were discussing exchanges, and I think naturally with any new industry there are hundreds of exchanges right now with very few on top. And I think they’re kind of growing through their growing pains and enduring kind of a struggle of too many trades happening laid with that. And so I think the banking industry will start kind of heading up its own cryptocurrencies, and I think the free market will sort out its problems and we’ll start to see exchanges come out with 100 percent, fool proof trading. It’s pretty exciting.
Brandon: Yeah, it’s exciting. And it’s definitely Wild West free market. We are not investment advisors, we are not accountants, and we are not attorneys. So please be aware that you’re operating at your own risk. In the Wild West, make sure you got a six shooter and a rifle and a good horse, and you are learning as much as you can and protecting yourself and obviously not risking your family’s livelihood on this. But it is exciting as much as the Wild West is exciting, and the Gold Rush was exciting back in the day, and we’re going to be talking in some upcoming episodes about what are some of the needs out there, some of the needs we’ve identified and other people have identified. Not necessarily exactly in the space, but maybe creating kind of some picks and shovels in the business. Maybe some creative ways to do that, and we’re actually just going to be kind of open about what we’re doing here with some of the ways that we’re trying to make, picks and shovels, so that you can learn and make your own picks and shovels and axes and milling machines, and all sorts of things that you can get on with this big transfer of wealth that’s happening.
Blake: And speaking of growing pains I think even with this podcast, we’re going to have some too. So our microphone situation, we’ll work on that. We’ll also put up an email so that listeners can send suggestions on what you’d like to hear about. Maybe we can answer your questions and hopefully we’ll get some interviews lined up. And yeah, I think that’s a good start to the podcast.
Brandon: Alright, let’s wrap it up.
Blake: Thank you for listening.