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Warren Buffett's best lesson? Hedge against your best judgment.

February 16, 2025

What can you learn from Warren Buffett's Bitcoin fiasco? Bet against yourself.

Don't be like Warren Buffett. Don't let your ego blind your vision. Don't let your investment philosophy get in the way of the most important rule in investing: diversification. 

Ten years ago, Berkshire Hathaway was sitting on $42 billion in cash reserves. Like everyone else in finance, Warren Buffett was advised to have his company invest some money in Bitcoin just in case. Warren Buffet refused, infamously calling Bitcoin a "mirage". Time has proven Buffett wrong in many multiples. Had Warren Buffett had the vision to invest to see beyond his ego and the wisdom to second guess his human judgment, Berkshire Hathaway would have made over 15,000% in just 10 years.    

Warren Buffett, the chairman and CEO of Berkshire Hathaway, has been a vocal critic of Bitcoin for over a decade. His skepticism dates back to at least March 2014, when he referred to Bitcoin as a "mirage." On March 13, 2014, the day Buffett made his now infamous "mirage" comment, Bitcoin was trading at approximately $620. As of February 15, 2025, Bitcoin is trading at $97,704. This represents an appreciation of approximately 15,654% since March 2014.

Had Warren Buffett invested in Bitcoin back in March 2014, he would have made $156 in profit for every $1 invested. Had Buffett invested 5% of his cash in Bitcoin back in March 2014, he would have turned approximately $2 billion into over $300 billion. 

  • On March 14, 2014, when Bitcoin was priced at $620, $2 billion would have purchased approximately 3,225,806 BTC. The value of all that BTC would now be approximately $315.17 billion, for a profit of about $313 billion. 

While Bitcoin appreciated 15,000% in the past ten years, the US dollar has lost almost 25% of its purchasing power due to inflation. Warren Buffett not only missed an incredible opportunity to invest in Bitcoin, but also hoarded an excessive amount of cash making his company lose a lot of money on opportunity cost. 

Hindsight is 20/20: Learn From Mistakes

We can say that it's unfair, or even a sacrilege, to criticize the legendary Warren Buffett, the Oracle of Omaha. We can say that Buffett did the right thing based on the information he had or what he knew at the time about Bitcoin. However, that approach would leave us dumb and make us miss the point. There are least two lessons to be learned from Warren Buffett's colossal failure to invest in Bitcoin: (i) never forget the #1 rule of investing, which is diversification; and (ii) diversification includes hedging or betting against your own best judgment, knowing that you are human and may be totally wrong. 

Warren Buffett was totally wrong about Bitcoin ten years ago. Even if he believed that Bitcoin was a mirage, it would have been better to smartly hedge against himself and "burn" some money on Bitcoin just in case. He didn't and that was a mistake. 

Mistakes are learning opportunities in life. Learn from your mistakes, and most importantly learn from other people's mistakes. Remember the #1 rule in investing, which is diversification. Remember that diversification includes hedging against yourself and betting against your best judgement just in case you are wrong. 

Now you know it.

www.creatix.one

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