The Bitcoin Dream
Last night, I dreamt of my friend who always talks and tweets about Bitcoin. For the sake of hiding his identity, I have named him Bittu (for he is a Bitcoin buff). The dream went like this:
Bittu: Hi Ankur
Me: Hi Bittu
Bittu: Did you read my latest tweet on Bitcoin?
Me: No, I am absent on Twitter.
Bittu: Why? You know there’s so much of valuable information available on Twitter.
Me: I know. But I also remember what my teacher Buffett says: “Value is what you get and price is what you pay”. I think, for me, the cost in terms of distraction and time spent on Twitter would be more than the value I would get. It would be a losing trade. Hence, I stay away.
Bittu: As you wish. By the way, did you invest in Bitcoin?
Me: No, I don’t understand it. My teacher Buffett teaches that one should stay within one’s circle of competence. I don’t understand Bitcoin and its dynamics and the chances are low that I would understand it even if I made an attempt.
Bittu: I suggest that even if you don’t understand Bitcoin, you should invest 1-2% of your networth. If it works out, it would make you rich.
Me: But I am already comfortably rich for my lifestyle. My teacher Buffett also teaches that one should not risk what one does have and does need in order to get something one doesn’t have and doesn’t need. More importantly, putting 1-2% might be a relatively small amount but it would break my discipline. Soon enough, I am sure there would be many opportunities which I don’t understand, vying for 1-2% each. I feel it would be a slippery slope- easier to start but difficult to stop.
Bittu: The way the governments around the world are printing money, it’s quite likely that there might be massive inflation. Bitcoin would be a good hedge against inflation.
Me: I don’t understand that part well enough. For the sake of discussion, if we assume that there might be high inflation, I feel that people would still require necessary products and services. And strong businesses would have the pricing power to pass on inflation to their customers. Hence, strong businesses too should serve as a hedge against inflation.
Bittu: People also say that if not a wealth creator, Bitcoin might act as a wealth protector.
Me: By whatever name you call it, ultimately every financial transaction has 2 components: cost and value. You need to have a fair idea of both in order to enter deals which first protect and then create wealth. If you don’t know either of them, you are entering quicksand. I know the cost of Bitcoin but not its value.
Bittu: The narrative around Bitcoin is changing. Even some of the best-known investors are throwing their weight behind it. You would get left behind.
Me: I don’t want to fall for social proof. I have fallen for it earlier and have learnt precious lessons out of it. If other investors understand Bitcoin and make money, they deserve it. The fact that they make money and I don’t, shouldn’t bother me.
Bittu: You are raving too much about your teacher Buffett. Do you know he has underperformed the benchmark for so many years and his investing methods have become a passe?
Me: Underperformance is partly because of the gigantic amount of money that he oversees and not necessarily because of obsolescence of methods. I manage small sum of money and understand his investing methods. His methods have worked for me in the past and hopefully they should work in the future as well.
Bittu: His methods won’t work forever. Till what point will you follow him?
Me: He has shown the path till $300 bn. Once I reach there, I will see.
Bittu: What’s the path?
Me: Buy good quality businesses run by good quality people and available at a fair price. Buy in sizeable quantities and hold them for a long period of time.
Bittu: Okay Ankur, I need to go. Good luck for creating wealth through investing in such businesses.
Me: Thanks, Bittu. Good luck to you too for creating wealth through Bitcoin.
