Investing vs. Speculating

Warren Buffett’s perspective on Bitcoin and investing provides a clear distinction from Bill Miller’s view, highlighting a fundamental debate about what constitutes an investment. Buffett argues that Bitcoin is speculative, as it produces nothing tangible—no “little Bitcoins” emerge from it—and its value depends solely on finding a buyer willing to pay more in the future. He emphasizes that true investing involves purchasing productive assets, such as businesses or real estate, which generate cash flow or tangible output. Conversely, Miller challenges this by stating, “The objective of investing is not to own productive assets, the objective is to make money.” I believe Miller’s description is better suited to speculating. I would argue, “The objective of speculating is not to own productive assets, the objective is to make money” yet this objective hinges on what I consider the unknowable. Attempting to predict Bitcoin’s future value resembles the messy macro view of guessing the future, much like ancient Etruscan diviners who spilled sheep guts to divine omens from entrails, hoping to forecast events with no reliable basis.

My perspective aligns closely with Buffett’s, emphasizing the importance of productive assets in investment decisions. Unlike Bitcoin, which lacks a mechanism to generate output or income, assets like a metallurgical coal miner on the low end of the global cost curve, or companies like Costco, Amazon, or Walmart, produce goods or services that drive consistent revenue. These productive assets can be valued by assessing their cash flows, allowing investors to determine whether they are undervalued, fairly priced, or overvalued. This valuation hinges on understanding what is both important and knowable—a principle that is absent with Bitcoin, where its value is purely speculative, akin to the guesswork of Etruscan diviners. Even if Bitcoin did produce cash flow, it would lack a mechanism to reinvest those earnings at high rates of return. Since it generates no cash flow at all, there are no earnings to redeploy elsewhere, further limiting its ability to compound value over time, unlike businesses that reinvest profits at high rates of return.

My investment strategy focuses on identifying “compounding machines”—businesses with the proven ability to reinvest earnings at high rates of return, driving sustainable, long-term growth. Bitcoin falls short of my criteria for a sound, long-term investment: it produces nothing, defies reliable valuation, lacks the ability to compound earnings, and fails to answer the critical questions of what is important and knowable. Instead of chasing one-off speculations, hoping my guesses about the future will entice someone to pay more later, I adhere to disciplined, repeatable strategies grounded in fundamental principles. This approach seeks consistent, predictable returns, aiming to build wealth through clarity and conviction while navigating the messy uncertainties of the world, rather than relying on speculative bets on unpredictable outcomes.