Why Warren Buffet is wrong about money
What is money? In the wise words of G.L.S. Shackle:
“Money is the refuge from specialized commitment, the postponer of the need to take far-reaching decisions”
In other words, in a time where there are no good opportunities to invest, money is supposed to protect us from having to make such a “specialized commitment”. It does this by acting as a store of value.
Many individuals and companies are currently using this property of money to postpone investment decisions, hoping for better opportunities in the future.
One notable example of this is Berkshire Hathaway, Warren Buffet’s investment conglomerate and one of the biggest public companies in the world. Berkshire currently holds about $150 Billion in cash. Buffet, of course is known for value investing, i.e. looking for companies and assets that are significantly undervalued.
From the size of Berkshire’s cash pile you can deduce that Buffet is currently convinced that a significant portion of the market is overvalued and that he’s therefore making use of Shackle’s money definition to postpone any far-reaching decisions.
While Buffet is correct that most assets today are overvalued, he is wrong about the second part of his equation: The problem is that the cash he is hoarding is no longer satisfying the requirement of acting as a store of value. The Dollar, Euro, Yen and most other currencies are losing value quickly and this trend is only going to accelerate as government debts pile up.
In the words of Ray Dalio “cash is trash”.
It is understandable that Buffet is getting this wrong because he grew up and celebrated his successes in a monetary paradigm of limited inflation and moderate government debts.
The only true form of money that can still act as Shackle’s “postponer of the need to take far-reaching decisions” is Bitcoin, which is scarce and not influenced by government debt.
Famously Buffet has called Bitcoin “rat poison squared”. This is because he is thinking of Bitcoin as an investment with no cash flow. However, Bitcoin is not an investment. It is cash, the only real form of it.
Buffet likes cash. Once he understands that’s what Bitcoin is, he’ll start coming around like many other famous investors before him.
