“I’ve got some advice for you too.
When you have your own retirement account, and your friendly advisor suggests you put
all the money into Bitcoin… just say no!”
Welcome back, my 17,000 favorite people.
I’m so glad you’re here.
… ah, I blocked a really hard shot in my competitive indoor soccer league last night
with my jaw, so…
I certainly hope I didn’t lose too many brain cells.
But, if you think my comments on this subject here today are crazy, well… maybe you could
blame that.
Or… you can just blame me.
That’s fine too!
But man, Charlie Munger does not mince words does he.
Well, he’s actually even more critical later on and goes into a bit more detail as to why
he feels the way he does.
But first, here’s Buffett’s thoughtful example of this issue - where he compares
an opportunity to invest in farmland, apartments, and Bitcoin.
Let’s listen…
“Well, I shouldn’t answer any questions on the subject, but I will.
You know, there’s all kinds of people watching this that are long Bitcoin and there’s nobody
that’s short.
And nobody wants their windpipe stepped on.
And I don’t blame them—I don’t like people to step on my windpipe.
But I would say this, that if all the people in this room owned all of the farmland in
the United States and you offered me a 1% interest in it and you said “for a 1% interest
in all the farmland in the United States, pay me (pay our group … let’s see) … pay
us this bargain price: $25B. I’ll write you a check this afternoon.
$25B. Now I own 1% of all the farmland.
If you tell me you own 1% of the apartment houses in the United States and you offer
me a 1% interest - so I’ll have a 1% interest in all the apartment houses in the country
- and you want (whatever it may be, call it) another $25B or something.
I’ll write you a check!
It’s very simple.
Now, if you told me you owned ALL of the Bitcoin in the world.
And you offered it to me for $25…
I wouldn’t take it because what would I do with it?
I have to sell it back to you one way or another.
I mean… to the same people.
But, it isn’t going to do anything.
The apartments are going to produce rental and the farms are going to produce food and
if I’ve got all the Bitcoin - I’m back where whatever his name was who may or may
not have existed was, you know, 15 years ago - if I’ve got it all, he could create a
mystery about it, but everybody knows what I’m like, so… if I’m trying to get rid
of it, you know, people will say “well, why should I buy some Bitcoin from you?
Why don’t call it Buffett-coin, you know, make your own or something?
What, do something, but I’m not going to give you anything for it…”
And you’d be right incidentally.
But, that explains the difference between productive assets and something that depends
on the next guy paying you more than the last guy got.
Now net, if you look at it, a lot of commissions have been paid, and there’s all kinds of
frictional costs that are very real that somebody has paid to a bunch of people who facilitate
this game.
But whenever one group of the public is taken out - or one of owners, it’s come in from
other people - I mean, other people have entered the room and moved money around, but there's
no more money in the room, it’s just changed hands with a lot of fraud and costs involved.
You know, a whole bunch of things you lose, you know, you forget the numbers, forget the
equation, and … you can do that with a lot of things, you know, it’s been done throughout
history.
Certain things have value that don’t produce something tangible.
I mean, you can say a great painting will probably have some value 500 years from now.
It may not.
But the odds are pretty good that if it was a big enough name that at some point.
There will be a few things - I mean, you can find something, if somebody wants to sell
you a pyramid or something and you can charge viewers…
you know, it’ll be around a long time and won’t produce anything, but people will
find it interesting to go there cause everybody loves the pyramids, but basically, assets
- to have value - they have to deliver something to somebody…
“…with those few deficiencies, whether it goes up or down the next year, or 5 years,
or 10 years, I don’t know, but the one thing I’m pretty sure of is that it doesn’t
multiply, it doesn’t produce anything.
It’s got a magic to it - and people have attached magic to lots of things - it’s
a goal in Wall Street, you know, create magic.
We are not an insurance, we’re a tech company.
Well, they’re an insurance company but a dozen people or so raised a lot of money and
said just don’t pay any attention to the fact that we sell insurance.
We are a tech company.
Well, in the end they wrote insurance and overwhelmingly they’ve lost a lot of money
since then.
You can make up things that work well in getting money from other people…”
Buffett started that riff on Bitcoin explaining why people won’t want to hear him out on
this.
(And I too think this is really important.
It’s a big part of why I spent so much time challenging the mainstream investment industry
in my book…)
Critical thinking - especially when it is in conflict with past decisions - is an incredibly
valuable skill that many people struggle to master.
Buffett goes on later in this portion of their annual meeting to talk about how tribal people
have become these days.
He says it’s worse than anytime he’s experienced since he was a boy and the country was trying
to recover from the Great Depression.
He points out how dangerous tribalism can be for a society - it’s not a good quality.
His point is: when you are a member of one tribe - you have your way of viewing things
and you tend to be pretty closed minded to any outside opinions - especially those that
might imply you’ve made some mistakes - especially when they’re mistakes that have to do with
very important decisions in your life, like… the investments you’ve chosen for your life
savings.
Or… think about this - I’ve noticed this with parenting - I have four wonderful children
and my wife and I try to be very intentional about how we raise them.
There’s nothing more important.
But when we’re talking to another parent, who maybe has older children than we do, we
don’t volunteer all the things we’re doing - that we’ve decided are important and are
in the best interest of our children - because if they’re doing something differently,
parents occasionally get defensive - they react as though what we’re doing is an assault
on their decisions.
For example - and I mean no offense if this does not align with the way you’ve raised
your kids - but I think (whether or not you have kids) it will bring clarity to Buffett’s
point here…
So, for example, we significantly limit our children’s screen time.
And with four kids, and my wife homeschools all of them (so she’s at home all day with
all of them), that’s not an easy feat - it’s VERY tempting to just put them in front of
a screen (a movie, a show, a game, whatever…) so we can take a break.
And I think everybody would agree - at least before you have children - that the less time
your child spends in front of a screen, the better it’ll be for their development.
But it is hard, yeah, so I understand why people let their kids sit in front of screens.
I understand why they start justifying more and more time each week, each day - you know,
why they ultimately just settle on some daily or weekly “time limit” instead of just
cutting it out altogether (except for the occasional family movie - maybe once a month
or something like that).
Think about it: that’s an easy thing for me to discuss with someone who hasn’t had
kids yet.
They can be like, “yeah, that’s awesome!
I wanna do that.
Tell me more about your experience so I can learn from you…”
Right?
But think about how much more difficult that exact same conversation could be with someone
who has kids that are (perhaps) several years older than mine and who are addicted to screens
…ultimately, because of parenting decisions they made.
If that person were to acknowledge that my philosophy on limiting kids’ screen time
is right, what does that say about them?
Does that mean they are a “bad parent”?
That’s not what I’m saying - everyone’s situation is different - I have no idea what
you’re going through - that’s not my call to make.
Honestly …I don’t care.
What I do care about, is what I can control - and in this example - that is what I do
with MY children.
But you can see how, if you had older kids, who were watching tv, playing video games,
addicted to social media… and you heard what I just said about my philosophy on screen
time in general…
you can see how agreeing with me there brings with it so much more than just the sentiment
alone.
It opens yourself up to a lot of guilt - to the possibility that you MAY have made a mistake
- and with something so important as your children.
So you can see how that reality of all the weight that comes with a simple acknowledgment
that perhaps my philosophy on the issue is correct - surely you can imagine how naturally
(instinctively) one would resist accepting that philosophy.
You would look for holes in my arguments - you have a lot of incentive for me to be wrong!
You want me to be wrong here.
Because then, the decisions you made in the past will be validated.
If you accept that I’m right, you’re also accepting that you made a mistake in the past.
And that psychological reality might be a little more extreme with your children than
it is with your investments - but I think it’s similar.
Nobody wants to have been wrong in the past, so human nature will have you only looking
for arguments that might confirm your way of thinking.
It’s very difficult to be open-minded enough to opposing possibilities once you’ve made
that initial decision.
And that’s what Buffett describes when he talks about tribalism.
People who’ve already made the move into Bitcoin - and there are a lot of them - are
intrinsically motivated (whether you realize it or not) to lift up any arguments that support
your past decision (even if they’re not even that strong) and to ignore or disregard
any arguments to the contrary (even if they’re incredibly solid and logical).
I hope that makes sense…
(now that I’ve offended every parent AND Bitcoin hodler).
Now, Munger had a slightly different take - and I do disagree with him on a couple of
these points here - but he’s smart - so we should definitely hear him out and you
can piece it all together to come to your own conclusion.
Here he is…
“I have a slightly different way of looking at it.
In my life, I try and avoid things that are stupid and evil and make me look bad in comparison
with somebody else and…
Bitcoin does all three!
And in the first place, it’s stupid because it’s very likely to go to zero.
In the second place, it’s evil because it undermines the Federal Reserve system and
the national currency system, which we desperately need to maintain its integrity and government
control and so on.
And third, it makes us look foolish compared to the communist leader in China.
He was smart enough to ban Bitcoin in China and with all of our presumed advantages in
civilization we are a lot dumber than the communist leader in China!”
“Yeah, and when 25% of the people in the country get mad because we’ve said what
we’ve said today, just remember Charlie spoke last and was the most ….”
… Well, and here you go, I’m going to speak last here, so you can be most upset
with me if you’d like.
Now, his first point here is the one Buffett spent minutes trying to analogize.
It’s the fact that it could go to zero.
There’s not actually anything there…
other than lines of code.
There is no denying that if everyone decided that it wasn’t worth anything, you couldn’t
use it for anything else - thus no one would be willing to buy it because they couldn’t
do anything with it.
Whereas with physical goods like any raw material, or farmland, or apartments, even if nobody
wanted to buy those from me they all are still able to produce something or have a real practical
application other than just a means of exchange.
Right?
So even if I don’t necessarily agree with Munger‘s wording that it is “likely”
to go to zero, I acknowledge the possibility, and so would definitely advise limited exposure
(if at all).
I also acknowledge the value of the innovation, and realize that its value could go up really,
really high.
But…
there are so many reasons to believe that would be met with significant resistance.
Here’s what I mean: as Munger points out, it does undermine the Federal Reserve and
central banks worldwide.
And since they are the ones that hold the power right now - and they hold a lot of it
- I can’t imagine a situation where the governments around the world willingly cede
that power they currently wield without a massive fight - you know, cause it would effectively
mean the death of the control they (at present) have on the world.
I’m not saying that would be a bad thing …long term - but it would obviously be messy.
Painful.
And I don’t claim to know exactly how that would play out…
Now, I do disagree with Munger that the fact that it undermines our current currency makes
it evil.
I think that idea is oddly in conflict with many of the free market, capitalistic ideals
in which Munger otherwise believes.
And I also disagree with his third point, although I do believe (given what I was saying
earlier about central bankers’ power,) that as Bitcoin gains more and more traction (if
it does), more and more governments will follow the leadership of China by trying to find
ways to shut it down.
That being said, once again, I believe that would be government overreach - and I don’t
think that’s a sound precedent for any nation despite what Munger seems to be suggesting
here - but… that’s never stopped them before.
Anyway, you came here for Buffett and Munger, and I gave it to you - those were all their
comments from Berkshire Hathaway’s annual meeting.
If you are actually interested in my thoughts on the subject, let me know in the comments
and maybe if there’s enough support I can create other videos on Bitcoin and cryptocurrency
in general.
If you haven’t seen Buffett’s thoughts on inflation, you should check those out right
here.
The man has a way with analogies and given the state of things today, I think it’s
an important issue for everyone to understand.
I hope to see you there.
I wish you all the best.
Take care.