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John Engle
John Engle
Articles (332) 

One Expensive Lunch Will Not Change Warren Buffett’s Mind on Cryptocurrency

Justin Sun’s $4.57 million bet was probably a poor investment

June 10, 2019 | About:

For nearly two decades, Warren Buffett (Trades, Portfolio) has supported Glide, a charity aimed at helping homeless people and victims of domestic violence, in an unusual way: Rather than simply donate money, Buffett auctions off his time. Specifically, the winning bidder gets the opportunity to have lunch with the CEO of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).

The value of Buffett’s time

Judging by the winning bids each year, Buffett’s time has only increased in value: While the inaugural auction brought in just $25,000, the winner in 2019 bid a whopping $4.57 million.

This year’s winner is Justin Sun, a Chinese cryptocurrency entrepreneur whose Tronix token is valued at more than $2.5 billion.

While previous winners have rarely had agendas for their lunches with Buffett, Sun is a man on a mission. Specifically, he hopes to sell the renowned value investor on crypto.

Guess who’s coming to lunch

Sun has paid a lot of money to get Buffett’s undivided attention, but can he make the guru a convert? He seems confident in his persuasive skills. In an open letter to the crypto community, Sun laid out his vision for his face-to-face meeting with Buffett:

“Even one of the most successful investors of all time can sometimes miss a coming wave. Buffett has admitted he overpaid for big investment food giant Kraft Heinz Co., while failing to realize the potential of the likes of Amazon.com Inc.; Alphabet, the parent of Google; and even Apple.”

Clearly, Sun is not lacking in confidence. But the idea he can convince the Oracle of Omaha, who has referred to bitcoin as “probably rat poison squared,” to change his mind in the course of a single lunch seems rather farfetched.

A tall order

While Buffett has expressed support for blockchain technology as a whole, his attitude toward cryptocurrency as an investment has been persistently negative. In January 2018, he opined that cryptocurrencies would likely “come to bad endings."

Charlie Munger (Trades, Portfolio), Buffett’s longtime business partner and closest confidant, has been even more scathing in his assessment of cryptocurrencies, going so far as to characterize bitcoin, the doyen of the asset class, as a “noxious poison.” He is also unimpressed with traders and investors who have gotten on the crypto bandwagon:

"I think that people who are professional traders that go into trading cryptocurrencies, it’s just disgusting. It's like somebody else is trading turds and you decide I can't be left out."

Buffett was going to be a hard sell on his own. Given the opinion of his most trusted colleague, it sounds like Sun may be undertaking an expensive fool’s errand.

A change of heart?

Many seasoned Buffett-watchers have found plenty of reasons to raise their eyebrows in recent years, especially when it comes to his pivot toward tech stocks, including Apple (NASDAQ:AAPL) in 2016 and Amazon.com (NASDAQ:AMZN) this year.

These somewhat uncharacteristic investments appear to have convinced Sun and other speculators of various persuasions that Buffett has opened his heart to their kind of asset classes. This simply is not the case.

Show me the value

While getting into richly valued tech stocks might at first seem wholly antithetical to Buffett’s own avowed principles, such a conclusion is ultimately too simplistic a reading.

Yes, betting on Apple or Amazon sounds a bit odd even now, but they are companies with vast troves of cash, stable and growing core businesses and high-quality leadership. They are excellent companies, exactly the sort of businesses Buffett has always loved buying. It’s just that they are a bit too expensive for most value investors’ tastes.

Verdict

Sun and his ilk have failed to grasp that Buffett’s recent dalliances with tech companies have not signaled a meaningful change in his outlook or underlying philosophy. Buffett is fundamentally still a value guy, even when he is diverging from what seem to be conventional principles of value investing.

If Sun thinks he can speak to Buffett as if he gives a hoot about money-losing “growth” stocks and other such ephemera, he is sorely mistaken. The Oracle of Omaha is not going to buy into the crypto story anytime soon. It is fundamentally not an investment asset, but a tool of speculation. That has never been – nor likely ever will be – his style.

Disclosure: No positions.

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About the author:

John Engle
John Engle is president of Almington Capital - Merchant Bankers. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin and an MBA from the University of Oxford.

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