Warren Buffett’s views on Bitcoin are widely known to be bearish. Despite their popularity, the jury is still out on whether cryptocurrencies are a viable long-term asset class. After all, most suggested use cases have yet to prove themselves. And in the meantime, the slurry of fraud, scams, and other illicit activity continues to ooze.
Following the collapse of FTX, it seems Binance – the world’s largest crypto exchange – is now in the crosshairs of US regulators. The SEC is accusing the firm of fraudulently inflating trading volume and diverting customer funds. Meanwhile, the US Justice Department and the Commodity Futures Trading Commission have also filed legal action against the firm.
This story is still evolving and has yet to be proven. But it once again highlights the risks and uncertainties associated with investing in the cryptocurrency space. As such, sticking to Buffett’s buy-and-hold, long-term stock-picking strategy continues to be the better approach to building wealth. At least, that’s what I think.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Warren Buffett’s stance
Buffett’s negative view on cryptocurrency is identical to his views on commodities like gold. Neither asset class produces any form of cash flow and therefore has no intrinsic value beyond what someone else is willing to pay.
Gold has been gaining popularity over the last two years, with its price rising from around £1,339 per ounce in June 2021 to £1,558 today. This is hardly surprising given the level of economic volatility seen over this period. Don’t forget buying gold is a popular method to hedge against inflation.
When inflation is high, and interest rates are on the rise, being a shareholder can be tough. As the cost of capital increases, business valuations can drop sharply. And this was the primary driver behind the 2022 correction.
Yet, despite the general downward trajectory of the stock market, Buffett has been busy investing billions into shares. Why? Because while businesses may suffer in the short term, high-quality enterprises have the potential to thrive in the long run.
An investor who can identify superior companies when share prices are in free fall can snatch up top-notch stocks at bargain prices. And buying high-quality, undervalued shares is exactly how Buffett became a billionaire.
Finding undervalued UK shares
Finding cheap stocks to buy can be a bit precarious during a bull market. Corporate valuation is a complex subject relying on careful analysis and forecasting. But during a correction, when emotions are making decisions instead of logic, finding bargains becomes far easier.
Relying on earnings and cash flow multiples can help narrow the search. But investors still need to spend time understanding the underlying business. After all, there may be a valid reason why a company’s market capitalisation has been slashed, beyond weak sentiment. If underlying operations are fundamentally compromised, then a low P/E ratio may be justified.
On the other hand, if a stock is plummeting because of temporary disruption, then that would certainly merit closer inspection. Buffett, in particular, has been paying close attention to the energy, technology, and financial services sectors. Perhaps this may be a good place for investors to start their search.
The post Forget crypto. I’d stick to Warren Buffett’s advice in 2023 appeared first on The Motley Fool UK.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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