One of Warren Buffett’s most loyal disciples, Chamath Palihapitiya has stated that his mentor is “wrong about Bitcoin”. His comments comes in the wake of Monday’s appearance on CNBC by Buffet, his Berkshire Hathaway partner Charlie Munger and Microsoft boss Bill Gates, in which they took turns dissing digital currency, using choice terms like “turds” and “scum ball activity”.
There’s no denying that Warren Buffett is one of the greatest businessmen to ever walk the planet. The native of Omaha, Nebraska, nicknamed the “Oracle of Omaha” has consistently been ranked in the top five World’s Richest Men for the past 20 years, during which time he has amassed a personal fortune well in excess of $100 billion, of which he has given over $30 billion to charity.
87, Yet Still Wheeling & Dealing
At age 87, Buffett (above left, with Charlie Munger and Bill Gates) is still CEO and majority share-holder of Berkshire Hathaway, the vast holding company which houses more than 100 major businesses worldwide. In general he is still sharp as a tack, with a brain which is finely tuned towards traditional business lines like stocks and shares, futures and venture capital.
That said, since the advent of the internet, Mr. Buffett has sometimes seemingly found it hard to grasp the new digital era we live in. For example, Buffett famously totally missed the chance to make tens of billions of dollars by investing in both Google and Amazon, believing neither would amount to anything – an error of judgement he now regrets.
Clearly Warren Buffet is no fan of either cryptocurrency or blockchain technology, but at the same time, admits to knowing next to nothing about either. It would appear that once again, he and his business partner (since 1959) Charlie Munger are going to miss the biggest investment opportunity since the likes of Google, Amazon and Facebook, and all because of his inability to understand and absorb how something like Bitcoin could be a worth big money long term.
It is an error of judgement that isn’t shared by his protégé Chamath Palihapitiya, a super-sharp venture capitalist and Buffett-devotee who feels that on this occasion, his Svengali has got in wrong.
Who Is Chamath Palihapitiya?
Chamath Palihapitiya is a Sri Lankan born Canadian venture capitalist who has spent most of his working life in Silicon Valley. After a highly successful period of employment at AOL, Palihapitiya left in 2005 to join a fledgling company called Facebook. While employed by Facebook, Palihapitiya began investing in both his employer as well as other companies, creating an extremely lucrative portfolio and becoming very wealthy.
In 2011, he decided to leave Facebook and set up his own venture capital business which today is known as Social Capital, which now has assets of more than $1 billion. During this time Palihapitiya got to know Warren Buffett very well, so much so he became part of Buffet’s inner circle
Midweek, Palihapitiya made an appearance on CNBC’s Squawk Box in which he stuck up for cryptocurrency, blockchain technology and Bitcoin, and said that his mentor Warren Buffet, as well as Charlie Munger and Bill Gates had “got it wrong” when the three appeared on the same program the previous Monday. During that episode, Warren Buffet was his usual dismissive self when the subject turned to cryptocurrency, Bill Gates said he would “like to short it”, while Carlie Munger said dealing in cryptos was like “trading turds” and a “scum ball activity.”
What Chamath Palihapitiya Said On CNBC’s Squawk Box
Jumping to cryptocurrency’s defense, Palihapitiya countered Buffet, Gates and Munger’s comments, and launched an excellent defense of a technology he clearly believes in.
On the trio’s dismissal of cryptocurrency:
“Not everybody is right all the time, and I think we have to acknowledge that we all have biases. I’m a disciple of Buffett and Munger and one of the things they have said for years is you define a circle of competence and you stay within it, and I think it has been clear that in his entire investing career that technology has not been in his circle of competence.”
On his personal connection with Bitcoin:
“I’ve been in the Bitcoin market since 2012, and I feel like I’m in two different universes, I need a passport to go between the Bitcoin world in my regular world. What I would tell you is that the people who have owned bitcoin since 2012 view it as a hedge to the traditional financial infrastructure. True or not is unclear, but that’s how we’ve all viewed it.”
Why investors should heed mistakes made in 2007’s Market Crash:
“The reality is, all of these financial assets in the traditional markets are fundamentally correlated. We saw that in 2007, everything broke down, things that we thought were hedges went away, and so I think it’s really important to not forget what happened there. In 2018 or 19, heaven forbid we go through another cataclysmic event, we are going to see the same fundamental correlation and so again I ask why would it not make sense to have an uncorrelated hedge? This is about buying insurance. I think that something like Bitcoin is really important, why? Because it is not correlated to the rest of the market.”
The appeal of Bitcoin to a younger generation of investors:
“For this younger class of entrants into the market, they don’t want to buy gold and they want to buy something digital more reflective of their values.”
Finally, when he was asked about Charlie Munger’s comments on cryptocurrency being a “scum ball business” Palihapitiya said:
“I think it’s really unfair to not understand something and then disparage it. I think he (Charlie Munger) is really exceptional, I think Warren Buffett is exceptional, I think Bill Gates is exceptional at what they do, and I think it’s fair to say that in 30 or 40 years if I’m a vibrant successful investor and if I’m back on the show, the idea that I know what’s happening in 30 or 40 years’ time is just not true. The reality is things change.”