Warren Buffett Just Obliterated Bitcoin in Four Words

Warren Buffett Just Obliterated Bitcoin in Four Words

Billionaire investor Warren Buffett is taking his already harsh criticism of Bitcoin to another level.

Buffett, who has previously said that cryptocurrencies like Bitcoin will almost certainly “come to a bad ending,” was asked over the weekend at the Berkshire Hathaway annual meeting about comments made by business partner Charlie Munger—who has called Bitcoin “turds” and compared it to rat poison.

Buffett didn’t mince words. Bitcoin is “probably rat poison squared,” Buffett replied.

On Monday, Buffett appeared on CNBC to explain that he was so down on Bitcoin, and cryptocurrencies in general, because they don’t produce anything—so they’re essentially investments based on pure speculation.

“When you buy non-productive assets, all you’re counting on is that the next person is going to pay you more, because they’re even more excited about another next person coming along,” Buffett said. “The asset itself is creating nothing.”

Buffett has said in the past that he and many investors really don’t understand Bitcoin. On CNBC Monday, he added that cryptocurrencies’ mystique actually entices investors—because it seems like magic when, say, the price of Bitcoin rose 36% in April. (Mind you, that increase came after Bitcoin’s price had fallen to one-third of its all-time high near $20,000, which it hit last December.)

“It’s better if they don’t understand it,” Buffett said Monday. “If you don’t understand it you get much more excited.”

credit:  http://time.com/money/5267647/warren-buffett-bitcoin-invest/

Warren Buffett says bitcoin is 'rat poison'

Warren Buffett says bitcoin is 'rat poison'

Tell us how you really feel, Mr. Buffett.

The price of bitcoin took a dive after Warren Buffett renewed his criticism of the cryptocurrency — even comparing it to rat poison.

Bitcoin had been closing in on $10,000, but it fell nearly 6% Sunday and was down another 2% Monday to just over $9,300.

Buffett, the CEO of Berkshire Hathaway (BRKB), has been a bitcoin bear for years. He has often compared the cryptocurrency to gold, saying that both assets are strictly speculative and don't produce earnings and dividends like stocks do.

Before the Berkshire annual meeting on Saturday, Buffett told CNBC that bitcoin was "probably rat poison squared."

During the meeting itself, Buffett joked that "if you had bought gold at the time of Christ and you figure the compound rate on it, it's a couple tenths of a percent." What Buffett was saying about bitcoin was that you can buy it, but it will never produce anything of value.

He also responded to a question from the audience about bitcoin by saying that it and other crytpocurrencies "will come to bad endings."

Berkshire vice chairman and longtime Buffett confidant Charlie Munger was even more blunt.

Related: Here is what happened at this year's Woodstock of capitalism

"I like cryptocurrencies a lot less than you do," Munger said to Buffett. "To me, it's just dementia. It's like somebody else is trading turds and you decide you can't be left out."

Munger has also referred to bitcoin as poison. At the shareholder meeting of The Daily Journal(DJCO), a newspaper publisher in Los Angeles where Munger serves as chairman, he called it "noxious."

Strong words. But to be fair to bitcoin bulls, both Buffett and Munger have been wrong about the cryptocurrency. Buffett in particular.

He first called bitcoin a "mirage" in 2014 — back when it was trading for about $600. So even with the recent pullback, bitcoin has drastically outperformed the broader market, not to mention Berkshire stock and top Berkshire holdings like Apple (AAPL).

That's why some cryptocurrency experts think that investors should ignore Buffett's and Munger's repeated bitcoin bashing.

"What I do find monumentally baffling is that two of the world's most successful investors cannot see the intrinsic value of some form of cryptocurrency," Nigel Green, CEO of financial consulting firm deVere Group, wrote in a report early Monday.

"Do they honestly believe that there is no place for, and no value of, digital, global currencies in an increasingly digitalized and globalized world?" Green added.

Joel Greenblatt: Career in finance

Career in finance[edit]

Gotham Capital[edit]

In 1985, Greenblatt started a hedge fund, Gotham Capital, with $7 million, most of which was provided by junk-bond king Michael Milken.^[3] Through his firm Gotham Capital, Greenblatt presided over an impressive annualized return of 40% from 1985 to 2006.^[4]

Value Investors Club[edit]

Greenblatt co-founded a website with John Petry called the Value Investors Club,^[5] where investors approved through an application process exchange value and special situation investment ideas. Membership is capped at 250 members and considered highly prestigious.^[6] A 2012 academic study showed that the recommendations of members do in fact appear to generate significant abnormal profits.^[7] The club awards $5000 bimonthly to members who provide the best advice.^[8]

Magic formula investing[edit]

His book The Little Book that Beats the Market introduced an investment strategy of "magic formula investing", which is a method for determining which stocks to buy: "cheap and good companies" with a high earnings yield and a high return on invested capital. His strategy is featured in The Guru Investor by John P. Reese.

Formula Investing[edit]

In October 2009 he launched Formula Investing,^[9] an online money management firm that follows the investment strategy described in his New York Times bestselling book The Little Book That Beats the Market. Formula Investing is a money management firm that uses a proprietary stock-screening system and a disciplined approach to manage portfolios of value stocks. The firm offers its services to individual investors and institutions and to registered investment advisors, who can use Formula Investing as a sub-advisor.

Formula Investing uses a system that determines portfolio selections based on a combination of their relative cheapness and quality, as measured by earnings yield and return on capital. Formula Investing allows money to be managed in a disciplined manner that removes factors, like excess emotion and future projections, that often lead to bad investment results.

John C. Bogle: Personal life

Personal life[edit]

Bogle and his wife Eve have six children and are grandparents. They reside in Bryn Mawr, Pennsylvania.

At age 31, Bogle suffered from his first of several heart attacks, and at age 38, he was diagnosed with the rare heart disease arrhythmogenic right ventricular dysplasia. He received a heart transplant in 1996 at age 65.^[12][13]

Bogle is a member of the board of trustees at Blair Academy. He is also an advisory board member of the Millstein Center for Corporate Governance and Performance at the Yale School of Management. Bogle received honorary doctorates from Princeton University in 2005 and Villanova University in 2011. Bogle also serves on the board of trustees of the National Constitution Center in Philadelphia, a museum dedicated to the U.S. Constitution. He had previously served as chairman of the board from 1999 through 2007. He was named chairman emeritus in January 2007, when former president George H. W. Bush was named chairman.

John C. Bogle: Investment career

Investment career[edit]

After graduating from Princeton in 1951, Jack Bogle narrowed his career options to banking and investments. He managed to land a position at Wellington Fund where he showed great talent that made the manager of the fund, Walter L. Morgan to say that "Bogle knows more about the fund business than we do". Bogle was promoted to an assistant manager position in 1955 where he obtained a broader access to analyze the company and the investment department. Bogle demonstrated initiative and creativity by challenging the Wellington management to change its strategy of concentration on a single fund, and did his best to make his point in creating a new fund. Eventually he succeeded, and the new fund became a turning point in his career. After successfully climbing through the ranks, in 1970 he replaced Walter L. Morgan as chairman of Wellington,^[5] but was later fired for an "extremely unwise" merger that he approved. It was a poor decision that he considers his biggest mistake, stating, "The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot."^[6]

In 1974, Bogle founded the Vanguard Company which is now one of the most respected and successful companies in the investment world. In 1999, Fortune magazine named Bogle as "one of the four investment giants of the twentieth century".^[7]

In 1976, influenced by the works of Paul Samuelson, Bogle founded First Index Investment Trust (a precursor to the Vanguard 500 Index Fund) as the first index mutual fund available to the general public. In a 2005 speech, Samuelson ranked "this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing".^[8]

Bogle had heart problems in the 1990s and, in 1996, he relinquished his role as Vanguard CEO to John J. Brennan, his handpicked successor and second-in-command whom he had hired in 1982. Bogle had a successful heart transplant in 1996. His subsequent return to Vanguard with the title of senior chairman led to conflict between Bogle and Brennan. Bogle left the company in 1999 and moved to Bogle Financial Markets Research Center, a small research institute not directly connected to Vanguard but on the Vanguard campus.^[9]

Seth Klarman: Publications and works

Publications and works[edit]

Klarman has written many annual letters to shareholders but has kept a limited role in writing articles, opinion editorials or books. In an interview with Charlie Rose, he discussed the popularity of his shareholder's letters and a request on behalf of HarperCollins to write and publish a book on investing.^[42] He followed up on this request by publishing his first and as of February 2017, his only book, Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, a reflection of value investing found in his hedge fund. In the book he outlines the various issues with retail investing, and critiques small time investors getting into the market purely using metrics such as price momentum and losing money in the long run. He issues that this is speculation and at times gambling, and should be discouraged in the market place. The book asserts that more people should become value investors or people who invest in stocks that trade below their underlying value so as to purchase them at a discount.^[43]

The book had amassed a cult following among retail investors, professional and institutional investors as well as Wall Street as a whole.^[44][40][45] Due to "only 5,000 copies [being sold],"^[42] the book has gone out of print and has become a relic in the finance community. Originally the book was priced at $25 a copy, however, due to it being out of print it has a market price of $700 for used versions with newer copies going for $2,500 to $4,000.^[43][1] University libraries report the book as "one of their most wait-listed titles as well as one most claimed as lost."^[43] He has stated that he would be interested in holding a charity event where he bids his book to Wall Street executives.^[42]

He edited the 6th edition of Benjamin Graham and David Dodd's Security Analysis in 2008.^[46][47]

Klarman's published books and substantial writings are listed below:

• Klarman, Seth. Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor. HarperCollins.

Seth Klarman: Personal life

Personal life[edit]

Klarman typically keeps a low profile, rarely speaking in public or granting interviews.^[22] He lives in Chestnut Hill, Massachusetts with his wife, Beth Schultz Klarman, whom he met on a Boston Harbor cruise in 1982; they have three children.^{[1][23][24][25]} His brother, Michael Klarman, is a professor at Harvard Law School

Seth Klarman: Early life and education

Early life and education[edit]

Seth Andrew Klarman was born on May 21, 1957 in New York City.^[6][2] When he was six he moved to the Mt. Washington area of Baltimore, Maryland near the Pimlico Race Track,^[7] and grew up in a traditional Jewish family.^[8][9][10] His father was a public health economist at Johns Hopkins University and his mother taught high school English.^[11][12] His parents divorced shortly after their moving to Baltimore.^[7]

When he was four years old he redecorated his room to match a retail store putting price tags on all of his belongings and gave an oral presentation to his fifth grade class about the logistics of buying a stock. As he grew older had a variety of small time business ventures including a paper route, a snow cone stand, a snow shoveling business, and sold stamp-coin collections on the weekends.^[6] When he was 10 years old he purchased his first stock, one share of Johnson & Johnson (the stock splitthree-for-one and over time tripled his initial investment). At age 12 he was regularly calling his broker to get stock quotes, his reasoning behind buying a share of Johnson & Johnson was the fact that he has used a lot of band-aids (a product of the company) during his earlier years.^[6]

Klarman attended Cornell University in Ithaca, New York, and was interested in majoring in mathematics but instead chose to pursue economics.^[7] He graduated magna cum laude in economics with a minor in history in 1979.^[13] In the summer of his junior year he interned at the Mutual Shares fund and was introduced to Max Heine and Michael Price. After graduating from college he went back to the company to work for 18 months before deciding to go to business school.^[7] He went on to attend Harvard Business School where he was a Baker Scholar and was classmates with Jeffrey Immelt, Steve Burke, Stephen Mandel, James Long and Jamie Dimon.

Charlie Munger: Investment philosophy

Investment philosophy[edit]

"Elementary, worldly wisdom"[edit]

In multiple speeches, and in the book Poor Charlie's Almanack, Munger has introduced the concept of "elementary, worldly wisdom" as it relates to business and finance. Munger's worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems.^[3]

Munger, along with Buffett, is one of the main inspirations behind the book Seeking Wisdom: From Darwin to Munger. Author Peter Bevelin explained his key learnings from both Munger and Buffett in a 2007 interview: "How to think about businesses and investing, how to behave in life, the importance of ethics and honesty, how to approach problems but foremost how to reduce the chance of meeting problems." Bevelin stated that previously, he "was lacking the Munger ability to un-learn my own best-loved ideas".^[10]

Munger states that high ethical standards are integral to his philosophy; at the 2009 Wesco Financial Corporation annual meeting he said, "Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail."^[11] During an interview and Q&A session at Harvard-Westlake School on January 19, 2010, Munger referred to American philosopher Charles Frankel in his discussion on the financial crisis of 2007–08 and the philosophy of responsibility. Munger explained that Frankel believed:

...the system is responsible in proportion to the degree that the people who make the decisions bear the consequences. So to Charlie Frankel, you don’t create a loan system where all the people who make the loans promptly dump them on somebody else through lies and twaddle, and they don’t bear the responsibility when the loans are good or bad. To Frankel, that is amoral, that is an irresponsible system.^[12]

Munger is critical of cryptocurrencies, referring to Bitcoin as "poison".^[13] In early 2018 he likened bitcoin to "harvested baby brains" in an interview with Yahoo Finance.^[14]

Lollapalooza effect[edit]

Munger uses the term "Lollapalooza effect" for multiple biases, tendencies or mental models acting at the same time in the same direction. With the Lollapalooza effect, itself a mental model, the result is often extreme, due to the confluence of the mental models, biases or tendencies acting together, greatly increasing the likelihood of acting irrationally.^[15]

During a talk at Harvard in 1995 entitled The Psychology of Human Misjudgment, Munger mentions Tupperware parties and open outcry auctions, where he explained "three, four, five of these things work together and it turns human brains into mush,"^[16][17] meaning that normal people will be highly likely to succumb to the multiple irrational tendencies acting in the same direction. In the Tupperware party, you have reciprocation, consistency and commitment tendency, and social proof. (The hostess gave the party and the tendency is to reciprocate; you say you like certain products during the party so purchasing would be consistent with views you've committed to; other people are buying, which is the social proof.) In the open outcry auction, there is social proof of others bidding, reciprocation tendency, commitment to buying the item, and deprivation super-reaction syndrome, i.e. sense of loss. The latter is an individual's sense of loss of what he believe should be or is his. These biases often occur at either conscious or subconscious level, and in both microeconomic and macroeconomic scale.

Charlie Munger: Early life and education

Early life and education[edit]

Munger was born in Omaha, Nebraska. As a teenager he worked at Buffett & Son, a grocery store owned by Warren Buffett's grandfather.^[2]

After enrolling in the University of Michigan, where he studied mathematics, he never returned to Omaha except to visit.^[3]In early 1943, a few days after his 19th birthday, he dropped out of college to serve in the U.S. Army Air Corps, where he became Second Lieutenant. He continued his studies in meteorology^[4] at Caltech in Pasadena, California, the town he was to make his home.^[3]

Through the GI Bill he took a number of advanced courses through several universities; without an undergraduate degree, he entered Harvard Law School and graduated magna cum laude with a J.D. in 1948. At Harvard he was a member of the Harvard Legal Aid Bureau.^[4][5]

In college and the Army he developed "an important skill": card playing. “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don't get a big edge often. Opportunity comes, but it doesn't come often, so seize it when it does come.”

Benjamin Graham: Personal life

Personal life[edit]

According to The Snowball, after his son's death, Graham had an affair with the deceased's girlfriend Marie Louise "Malou" Amingues (who was several years older than his son^[17]) and used to travel to France frequently to visit her. He later separated from his wife, Estey, after she refused his offer to split their residence six months each year between New York and France. Amingues was content to live with Graham without marriage.^[18]

On September 21, 1976, Graham died in Aix-en-Provence, France, at the age of 82.

Benjamin Graham

Benjamin Graham

Benjamin Graham (/ɡræm/; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American investor, economist, and professor. He is widely known as the "father of value investing,"^[1] and wrote two of the founding texts in neoclassical investing: Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949). His investment philosophy stressed investor psychology, minimal debt, buy-and-hold investing, fundamental analysis, concentrated diversification, buying within the margin of safety, activist investing, and contrarian mindsets.

After graduating from Columbia University at age 20, he started his career on Wall Street, eventually founding the Graham-Newman Partnership. After hiring his former student and future manager of Berkshire Hathaway, Warren Buffett, he took up teaching positions at his alma mater, and later at Anderson School of Management at the University of California, Los Angeles.

His work in managerial economics and investing has led to a modern wave of value investing within mutual funds, hedge funds, diversified holding companies, and other investment vehicles. Throughout his career, Graham had many notable disciples who went on to receive substantial success in the world of investment, including Buffett, who described him as the second most influential person in his life after his own father. Other such disciples were William J. Ruane, Bert Olden, Irving Kahn and Walter J. Schloss. In addition, Graham's thoughts on investing have influenced the likes of Seth Klarmanand Bill Ackman.

Peter Lynch: Wealth and philanthropy

Wealth and philanthropy

According to a 2006 Boston Magazine article, Lynch has an overall net worth of $352 million USD.^[20]

Though he continues to work part-time as vice chairman of Fidelity Management & Research Co., the investment adviser arm of Fidelity Investments, spending most of his time mentoring young analysts, Peter Lynch focuses a great deal of time on philanthropy. He said he views philanthropy as a form of investment. He said he prefers to give money to support ideas that he thinks can spread, such as First Night, the New Year's Eve festival that began in Boston in 1976 and has inspired similar events in more than 200 other communities, and City Year, a community service program founded in Boston in 1988 that now operates in 14 locations.

The Lynches give money primarily in five ways: as individuals, through the Lynch Foundation, through a Fidelity Charitable Gift Fund, and through two charitable trusts.

The Lynches have made gifts as individuals, donating $10 million to Peter Lynch's alma mater, Boston College. BC, in turn, named the School of Education after the family.^[21][19]

The Lynch Foundation, valued at $125 million, gave away $8 million in 2013 and has made $80 million in grants since its inception.^[22] The Foundation supports education, religious organizations, cultural and historic organizations, and hospitals and medical research. Lynch was inducted into the Junior Achievement U.S. Business Hall of Fame in 1991.

Peter Lynch: Investment philosophy

Investment philosophy[edit]

Lynch has written (with co-author John Rothchild) three texts on investing, including One Up on Wall Street (ISBN 0671661035), Beating the Street (ISBN 0671759159), and Learn to Earn. The last-named book was written for beginning investors of all ages, mainly teenagers. In essence, One Up served as theory while Beating the Streetis application. One Up lays out Lynch’s investment technique including chapters devoted to stock classifications, the two-minute drill, famous numbers, and designing a portfolio. Most of Beating the Street consists of an extensive stock by stock discussion of Lynch’s 1992 Barron's Magazine selections, essentially providing an illustration of the concepts previously discussed. As such, both books represent study material for investors of any knowledge level or ability.

Lynch also wrote a series of investment articles for Worth magazine that expand on many of the concepts and companies mentioned in the books

Lynch coined some of the best known mantras of modern individual investing strategies.

His most famous investment principle is simply, "Invest in what you know," popularizing the economic concept of "local knowledge". Since most people tend to become expert in certain fields, applying this basic "invest in what you know" principle helps individual investors find good undervalued stocks.

Lynch uses this principle as a starting point for investors. He has also often said that the individual investor is more capable of making money from stocks than a fund manager, because they are able to spot good investments in their day-to-day lives before Wall Street. Throughout his two classic investment primers, he has outlined many of the investments he found when not in his office - he found them when he was out with his family, driving around or making a purchase at the mall. Lynch believes the individual investor is able to do this, too.^[14]

Lynch has also argued against market timing, stating: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves."^[15]

Lynch popularized the stock investment strategy “GARP” (Growth At A Reasonable Price)^[16], which is a hybrid stock-picking approach that balances Growth investingpotential with the discipline of Value investing. Many well-known funds now follow the GARP model, ranging from equity funds such as Fidelity Investments Fidelity Contrafund (FCNTX) and Lemma Senbet Fund, to index funds such as Russell Indexes iShares Russell 1000 Growth Index^[17].

He also coined the phrase "ten bagger" in a financial context. This refers to an investment which is worth ten times its original purchase price and comes from baseballwhere "bags" or "bases" that a runner reaches are the measure of the success of a play.^[18] A player who hits a home run with bases loaded (all three bases occupied by runners) will bring in ten "bags."