Value investing vs. cryptocurrency |

Buffett vs. cryptocurrency

Which investment strategy is right for you: Value investing or digital currencies?

Experts have long lauded Warren Buffett and his company, Berkshire Hathaway, for their approach to investing, which — as supported by our infographic — is to buy and hold stock for the long haul. Buffett’s strong belief is that repeatable cash flows combined with a significant, long-term competitive advantage — something Buffet calls a “moat” — is the way to build wealth in the long run. When it comes to cryptocurrency, however, the Oracle of Omaha is quoted as saying that Bitcoin and cryptocurrencies “will come to a bad end.”

On the flip side, digital currency has newly minted tens of thousands of crypto millionaires and billionaires. These people purchased such cryptocurrency as bitcoin, Bitcoin Cash, Ethereum or Ripple, profiting as these assets have skyrocketed in value.

How can you know which might be the better strategy for you? Let’s start with the data.

Our graph indicates that if you’d bought 1 share of Berkshire Hathaway (BRKA) a year ago versus 1 bitcoin (BTC), you’d have seen a 26.57% increase in your share value. That increase roundly beats the result of what Buffett himself would have advised you to invest in.

The S&P 500 rose 17.35% in 12 months, compared to bitcoin, which ran up 1,758.42% in the same period. If you’d instead parked $1 in BRKA, you’d have $1.26, versus the $1,758 your buck would’ve grown to by buying BTC.

Given the volatility of the market, though, past results are no indication of future success in investments. So we should examine where you could be a year from today if you were to invest a dollar each in BRKA and BTC.

The analyst consensus on BRKA is that the stock will rise 4.1% this year, with a high estimate of 9.9% and a low estimate of -5.5%. Whereas in our recent survey of bitcoin experts, our panel predicted an average 137.48% increase in the value of BTC, ranging from a high increase of 245.9% to a drop of 30.82% in value.

How to make sense of the data

Because we’re a comparison site, we urge you to take forecasts with a grain of salt. In fact, an MIT Sloan working paper once claimed that when analysts predict a stock will go up by more than 70%, their chances of being right are only about 25% — whereas if an analyst predicts a stock price move of 10%, they’re generally right 74% of the time. We can deduce from this that the larger the growth estimate, the more skeptical you should be.

If you adjust average estimates for these analysts being right, you get a price increase of 3% this year for BRKA and a price increase of 34.37% for BTC based on our survey of bitcoin experts.

Which is the better strategy?

Is buying bitcoin better a better personal investment than purchasing BRKA shares? Because a lot of its business is insurance and reinsurance, Berkshire Hathaway’s stock could take a major hit in the face of increasing natural disasters. But bitcoin swings wildly almost daily. With neither investment fail-safe, you’ll have to make that call.

If you have an appetite for risk and think there’s still room for bitcoin to double or even triple in value, here’s how you can get started with crypto.

buffet infographic

Jennifer McDermott

Consumer advocate helping people improve their personal finances.

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