To quote Warren Buffett, from his most recent letter to shareholders :
Charlie Munger, Berkshire’si vice chairman and my partner, and I believe both Berkshire’s book value and intrinsic value will outperform the S&P in years when the market is down or moderately up. We expect to fall short, though, in years when the market is strong – as we did in 2013. We have underperformed in ten of our 49 years, with all but one of our shortfalls occurring when the S&P gain exceeded 15%.
Late in 2009, amidst the gloom of the Great Recession, we agreed to buy BNSF, the largest purchase in Berkshire’s history. At the time, I called the transaction an “all-in wager on the economic future of the United States.”
That kind of commitment was nothing new for us: We’ve been making similar wagers ever since Buffett Partnership Ltd. acquired control of Berkshire in 1965ii. For good reason, too. Charlie and I have always considered a “bet” on ever-rising U.S. prosperity to be very close to a sure thing. Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.
During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?
With this tailwind working for us, Charlie and I hope to build Berkshire’s per-share intrinsic value by constantly improving the basic earning power of our many subsidiaries; further increasing their earnings through bolt-on acquisitions; benefiting from the growth of our investees; repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and making an occasional large acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.
Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power. I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497iii, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial.
Needless to say, I do not agree. I am not going to blather on the topic of just how wrong all this exceptionalist, jingo nonsense is. Instead, I will make it short and sweet :
To better understand each other : it’s not the case that a proposition bet in the millionsiv is either rare or exceptional on Bitbetv. It may be a rare thing in Vegas, and generally for the fiat worldvi, but we’re rich, and we’re powerful, and this sort of stuff is both common and unremarkable over here.
What’s remarkable, however, is that the yearly compensations of such luminaries as Kenneth Chenault, chairman, CEO and chief-everything of American Express (a company with gross revenue of 33 billion dollars over 153 billion in assets) comes to about fifteen million all told. That’s going to be 1k BTC if he’s lucky.
So, dear people who go around in buggies, clad in pelts, washing your hands in ash : you come home and tell the missus you’re “an investment banker” ? You tell girls in bars you “work on Wall Street” ? How much do you make ? When is the last time you landed a multi million dollar bonus ? What are your odds of landing a multi million dollar bonus this year ?
Here it is.
The lions always win.
PS. To make it perfectly clear : I didn’t buy Berkshire shares to hedge this bet. I sold them.———
- Here’s an interesting footnote for the student of Bitcoin :
Moreover, we will always maintain supreme financial strength, operating with at least $20 billion of cash equivalents and never incurring material amounts of short-term obligations. As we view these and other strengths, Charlie and I like your company’s prospects. We feel fortunate to be entrusted with its management.
If, according to Buffett, “supreme executive power” derives from owning 20 billion of cash equivalents, not from some “farcical aquatic ceremony”, then it would appear a fraction of 0.1% of the 20 trillion monetary mass is what supremacy is all about.
The much more modest Bitcoin monetary mass is about 10 million. The application of the same proportion would seem to indicate that 10`000 Bitcoin in cash and cash equivalents counts as supreme. Good to know, wouldn’t you say ? [↩]
- Perhaps worthy of note, in a majority of letters to shareholders since then, the man has deplored the execrable financials of that original purchase. I suppose the rosy pixie dust of senility makes even bed wetting accidents of 50 years ago appear delightful in retrospect. At least back then, they were accidents. [↩]
- It’s not a matter of Bitcoin surpassing a century of DJI growth in but five short years. It’s a matter of Bitcoin surpassing any business in the aggregate history of business, including all the pink sheet pump and dump scams. That’s right : nobody, never, nowhere came even close, which is to say within a degree of magnitude. That’s what we’re talking about here. Now go short it. [↩]
- Consider that the market is currently pricing Bitcoin over 10k as a 114.19/73.69 sort of proposition. That’s right : the open market valuation of the notion that Bitcoin will go over 10`000 USD this year is not so much worse than even odds. [↩]
- 1`886.91 BTC bet over difficulty, 1`689.80 BTC bet over product delivery and so on. [↩]
- Yeah, since we’re talking of this, when’s the last time Vegas took a million dollar bet on anything ? [↩]