Warren Buffett is the same person who once loathed the idea of owning gold or Bitcoin. The legendary investor trashed the precious metal back in 2000 by calling it an unproductive asset. He had a similar opinion about Bitcoin, a presumed digital gold that he called a “rat poison squared.”
Buffett Turns Gold Bull
On August 14, news dropped that Mr. Buffett’s Berkshire Hathaway purchased 20.9 million shares in Barrick Gold, a Toronto-based gold mining firm, for about $563.6 million. Meanwhile, the conglomerate dumped its bank shares en masse, selling 26 percent, 60 percent, and 100 percent of its ownership in Wells Fargo, JP Morgan, and Goldman Sachs, respectively.
The decision made a bold statement about Berkshire Hathaway: It prioritized a gold-focused company over a bank when it came to allocating funds. That marked a swift U-turn for the firm, whose founders repeatedly criticized gold on multiple global platforms. In the process of rejecting the precious metal, they might have also kept many potential copycat investors from owning it.
But entering 2020, the dynamics have changed. It started with the coronavirus pandemic that forced a majority of global economies into a state of lockdown. Governments responded by imposing lockdown to contain the virus from spreading. The money flow slowed down as businesses shut doors. Unemployment rose.
Then, the governments intervened with trillions of dollars of stimulus programs. The fears of inflation surged. That led to an increase in the price of gold, a perceivable safe-haven asset. The same fundamentals also helped Bitcoin to rise higher.
As the gold rate surged, so did the stock value of the companies that mine them. Barrick Gold’s share price rose by more than 60 percent on the increase in bids for the precious metal. That appeared attractive to Berkshire Hathaway, whose portfolio plunged around 13 percent thanks to Mr. Buffett’s old-school approach of staying invested in banking and airline stocks.
Let’s see what those investments looked like as of August 10.
Apple $1.89T 54.4%
Bank of America $236.5B -23.6%
Coca-Cola (NYSE:KO) $206.4B -12.3%
American Express (NYSE:AXP) $84.0B -17.3%
Kraft Heinz (NASDAQ:KHC) $42.6B 10.8%
Wells Fargo (NYSE:WFC) $105.3B -52.0%
Moody’s (NYSE:MCO) $51.6B 14.7%
JPMorgan (NYSE:JPM) $318.7B -25.9%
U.S. Bancorp (NYSE:USB) $57.8B -35.4%
Bank of New York Mellon (NYSE:BK) $33.9B -22.8%
Anthony Pompliano, the co-founder of Morgan Creek Digital, stated in his newsletter that Warren Buffett’s investment team had to dump their traditional beliefs after suffering the losses mentioned above. He wrote:
“I do not doubt that the investment team at Berkshire Hathaway has been discussing what they can do to mitigate the potential risk from high inflation in the coming years. If that conversation has been occurring, the natural conclusion in Wall Street’s conservative world is to gain exposure to gold.”
That leaves Bitcoin in a similar bullish spell. The cryptocurrency’s gains this year surpasses even that logged by gold. In June, billionaire hedge fund investor Paul Tudor Jones allocated 1-3 percent of his $22.5 billion-portfolio to Bitcoin futures. And just this month, MicroStrategy, a public-traded firm, bought $250 million worth of Bitcoin for its reserves.
Both of them gave the same reason for their high-profile cryptocurrency exposure: inflation. Mr. Tudor Jones called Bitcoin the “fastest horse” in the global market. And MicroStrategy noted that the cryptocurrency could protect their reserves from a falling US dollar.
Mr. Buffett did not make such calls for Bitcoin. He vowed never to get involved with the cryptocurrency that has “zero intrinsic value.” But his firm’s latest inclination towards gold cleared at least one thing: Mr. Buffett is prone to change his basic strategies in the face of an unseen financial threat.
Why? Because Bitcoin is better than gold. The cryptocurrency is scarcer with a 21 million hard cap. It is easily movable across borders, unlike the heavy, precious metal. And it has better divisibility being a digital token.
There is a higher likelihood now that people would invest in scarcer assets. Bitcoin is a clear beneficiary should such a trend picks momentum.
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