Did I really mean it when I spoke of reconsidering my approach to Bitcoin when I wrote about its recent price rise? Nah, I’m still not touching it, and today I just want to pick out three reasons why I think investors should steer clear.
Buffett hates it
You certainly shouldn’t listen to me uncritically, because I’ve been wrong about investments many times in my life (though I’m convinced I’m not wrong about cryptocurrencies). But Warren Buffett is worth hearing out, isn’t he? After all, he’s the most successful investor alive, and through Berkshire Hathaway he’s helped enrich a lot of other people along the way.
What does the guru think about Bitcoin? He’s famously described it as “rat poison squared” and has a number of times warned investors not to invest in it.
Buffett’s wealth has come from decades of investing in top quality companies, looking for great stocks at fair prices, with a view to holding them for ever. For UK investors, that mainly means FTSE 100 stocks.
No wealth generation
Something I like about investing in FTSE 100 shares is that I can make money without anyone losing any. I don’t need to time my buys and sells so I hold them when prices are rising and dump them on other when prices are falling, because the companies I invest in generate actual new wealth from which everyone can benefit.
When I take my dividends, they’re coming from company profits made through providing goods and services, and not from someone else’s profit.
Bitcoin doesn’t generate a penny in new wealth, and buying it means you need a so-called greater fool to buy it from you at a higher price in the future if you want to make money. There’s no fundamental outlook there for what a cryptocurrency might be worth in a year, or a decade, and there’s no way to put any sort of real valuation on a coin today.
FTSE 100 shares have annual profits on which to base valuations, together with company-generated outlook figures and analysts’ forecasts. And I can decide what I think a share is worth based on those fundamentals.
What the bulls say
Learning from other people’s opinions on FTSE 100 stocks is a big part of how I make my investing choices. I can read, weigh, and balance all kinds of rational analyses and conclusions, and form my own.
How does an examination of the opinions of Bitcoin followers help me? Well, just looking around today, I see talk of descending trendlines, 200-day average support, upside breaks, resistance lines, relative strength index, moving average convergence divergence, stochastic RSI… And, apparently, Bitcoin “tends to pick up a strong bid six months ahead of the reward halving.”
What are they all talking about?
It’s just imagined patterns people think they can see in the price charts. You know, the way some see shapes in the clouds and others see the future in tea leaves. But that’s all they can talk about, because they have nothing else.
There are plenty of other reasons to keep away from Bitcoin and other cryptos, which I might look at in the future. But for now, I say just avoid the rat poison.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short January 2020 $220 calls on Berkshire Hathaway (B shares). 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.