The Motley Fool

Forget Bitcoin! I’d rather make a million by following Warren Buffett’s strategy

The price of Bitcoin may have surged higher in 2019, but investing in shares, according to Warren Buffett’s principles, could be a better means of making a million.

In terms of risk, Buffett’s strategy could be more appealing than buying Bitcoin. It centres on assessing a company’s fundamentals, while a long-term strategy may lead to a more attractive shareholder experience compared to owning the volatile virtual currency.

With Buffett arguably one of the most successful investors of all time, his value-focused strategy could be a more reliable means of generating high returns in the long run compared to Bitcoin’s limited track record of success.

Lower risk

Although Buffett has a relatively concentrated portfolio, containing fewer stocks than many investors would normally own, his strategy is far less risky than owning Bitcoin. Not only is a portfolio of stocks more diversified compared to holding the cryptocurrency, shares have fundamentals that can be used to improve an investor’s risk/reward ratio.

For example, an investor may wish to focus on companies that trade on low valuations. Or they may wish to buy companies that have fair valuations, given their impressive growth strategies. The existence of annual reports and regular company updates means these aims are achievable with shares, which could lower risk compared to the uncertain prospects for Bitcoin.

Since the virtual currency lacks fundamentals, it’s dependent on investor sentiment to determine its price level. As such, an investor doesn’t know what price level merits good value for money, which means there’s an ongoing risk the cryptocurrency is overvalued.

Higher returns

Although the price of Bitcoin has moved higher since the start of 2019, Buffett’s track record suggests his strategy could offer greater returns over the long run. In fact, the ‘Sage of Omaha’ has significantly outperformed the wider index over a period of decades, with his simple strategy of buying high-quality stocks at fair prices, showing any investor can routinely beat the market on a consistent basis.

Looking ahead, Bitcoin’s return potential may prove to be somewhat disappointing. The cryptocurrency’s size may be limited, while its lack of infrastructure may mean that it fails to replace traditional currencies.

By contrast, there appear to be a wide range of shares offering bright growth prospects, and that trade on fair valuations. History shows buying a range of such companies and holding them for the long run may lead to a seven-figure portfolio for many investors.

Shareholder experience

Buffett’s investing style involves holding stocks for the long run, with short-term price movements viewed as opportunities to buy rather than panic. By contrast, holding Bitcoin could be a rather stressful experience, being highly volatile and lacking fundamentals, meaning it may experience exceptional highs, as well as significant lows.

As such, for investors seeking to make a million, following Buffett’s investment style could prove to be a more favourable move than buying into Bitcoin.

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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.