Tuesday, 18 February 2020

Warren Buffet vs. Tim Draper

Do you agree with Warren Buffet’s statement that cryptocurrencies like Bitcoin will almost certainly come to a bad ending?

Warren Buffet is one of the most successful billionaire investors of all time. He’s a value investor. Value investing is an investment strategy where stocks are selected that trade for less than their intrinsic values.

Buffet doesn’t invest in new technology companies. He buys undervalued stocks when they’re at the bottom, and then holds the stock forever. He first invested in Apple in 2016, not 20 years ago. That’s pretty recent. But now Apple has had decades to prove itself as an established company, and meets his high criteria for investment.

Buffet spends hours each day reading annual stockholder reports. He’s looking at companies with healthy free cash flows, a specific P/E ratio, favorable profit margins, the net worth/shareholder value of a business, and return on shareholder equity (ROE). Buffet invests in products he uses and companies like CocaCola and McDonalds that have been around for a long time. This has worked out pretty well for him.

His motto is “just show me the cash-owner earnings.”

Tim Draper is a long-time tech investor, venture capitalist and crypto-bull. He was the first person that attached catchy messages and links when email first came out. He basically invented viral marketing. Draper was an early investor in Tesla and SpaceX.

Draper bought 32,000 bitcoins in 2014 for an undisclosed price (the btc that was seized by the gov from the Silk Road). It’s estimated that he’s got around half a billion dollars in crypto, but maybe more. Drapers bitcoin investment was a 25x ROI in just three years. Draper also put $100m USD in Coinbase, the largest crypto exchange. Coinbase has more active accounts than Charles Schwab does and is valued at $8 billion USD.

“It’s better to be the one encouraging the changing of our own industry than to be the one who gets surprised by it.” - Tim Draper

There’s no way that Buffet would have bought that much BTC — a technology (hell, not even a company) that was less than five years old. It’d never happen, simply because Draper and Buffet have very different styles. The financial tools and valuation frameworks are world apart. Startup companies are betting on an idea. They might have a working product and revenue but they’re so new that you can’t use a lot of the same metrics Buffet uses to analyze them.

Buffet has probably cringed at the mania in the crypto space, which is the antithesis to his investment philosophy and to be avoided at all costs. He’s not a speculator and he doesn’t trade stocks. He doesn’t drive a purple lambo.

Berkshire Hathaway would be destroyed by shareholders if 9 out of 10 companies in their portfolio were performing poorly for more than a few years. Draper, being a VC on the other hand, expects most of his investments to have small gains, but expects one or two outliers to provide a, 10x, 20x, or 100x ROI.

But in some ways, they’re not so different. Buffet has famously promised to never sell a share of American Express or Coca Cola or Wells Fargo. Draper has shown similar bullishness and faith in buying and holding Bitcoin - ‘it’s the future of commerce.’ They both stick to their guns and focus on their area of expertise. It’s worked out pretty well for both of them considering they’re multi billionaires.

Buffet hasn’t commented much on blockchain tech, but he’s specifically targeted bitcoin. I think he’s kind of been forced to make a statement on it. In interviews he’s admitted that he’s not a tech investor, and it’s not his area of expertise.

Mind you, he’s been wrong before, like when he invested in IBM. He also didn’t invest in Amazon or Google, which he regrets not doing. Buffet admits “I was too dumb to realize.”

Buffet’s comments on bitcoin say little about crypto or the blockchain industry as whole. He lacks the track record of successful investments in the space along with the technical expertise and knowledge of tech in general. And if you ask me, there are people more qualified than him to make that call.

By Misha Yurchenko 
source: quora.com 
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