Why Buffett favours buildings over Bitcoin

Warren Buffett has outlined the importance of investing in real estate and other assets that generate value for owners, rather than in Bitcoin and other cryptocurrencies.   The 91-year-old billionaire investor spoke about this – and topics including the dangers of inflation, a “casino” mindset in Wall Street and “timing” market moves – during Berkshire Hathaway’s annual meeting in Omaha on 1 May, alongside vice chairman Charlie Munger, who is 98. “If you tell me you own 1% of the apartment houses in the United States, and you offer me a 1% interest, and you want… $25bn or something, I’ll write you a cheque,” he said. “[But] 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?” Owning an apartment building produces rental income, Buffett said, but cryptocurrencies do not produce anything for their owners. Equally, assets that deliver something to people will grow in value over time, unlike Bitcoin. “That explains the difference between productive assets and something that depends on the next guy paying you more than the last guy got,” he said. Munger added: “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.” Elsewhere, Buffett emphasised the importance of retaining enough cash to withstand market turbulence. Berkshire Hathaway’s own cash pile stood at some $106bn at the end of Q1. “We will always have a lot of cash on hand,” said Buffett, adding: “There have been a few times in history, and there will be more times in history, where if you don’t have it, you don’t get to play the next day. “It’s like oxygen. It’s there all the time, but if it disappears for a few minutes, it’s all over.” Inflation-proofing Separately, Buffett said the amount of inflation that Berkshire’s businesses have seen is “extraordinary”. He pointed to rising costs at furniture retailers that have, in turn, been passed on to customers. “People have more money than they’ve had before,” he said, mainly ascribing this to the US government’s recent fiscal stimulus measures. Jewellery retailing in the US was used as another example. “Jewellery stores were, generally speaking, not a very good business – two years ago, every landlord that had a jewellery store in their mall was wondering how they would get their rent,” he said. “Now, every jewellery store, virtually, is doing [better] than they ever dreamt, with way less inventory, because people are just coming and buying. They don’t wait for sales. We’re seeing an unleashing of the fact that [the US government] has just mailed a lot of money to people.” Buffett did not try to predict future inflation, however, saying no-one  can know how much inflation there will be over the next month – let alone the next 10 years. “Inflation swindles almost everybody,” said Buffett, from equity investors and bond investors to the person who “keeps cash under the mattress”. “The best protection against inflation is your own personal earning power,” he said. Buffett said when inflation is high, people and businesses can best protect themselves from the negative impact by developing their skills, in relation to a product or service that people will value and pay for. “The best thing you can do is to be exceptionally good at something,” said Buffett. He pointed out that people’s abilities cannot be “inflated away” from them. “If you’re the best doctor in town, if you’re the best lawyer in town… [people] are going to give you some of what they produce in exchange for what you deliver,” he said. “They will trade you for the skill you have. So the best investment, by far, is anything that develops yourself.” To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Image © Nati Harnik/AP/Shutterstock