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Forget Bitcoin! I’m following Warren Buffett’s advice to get rich

Rupert Hargreaves
·3-min read
Piggy bank group pastel color background
Piggy bank group pastel color background

Bitcoin has posted some fantastic investment returns this year. However, when it comes to investing for the long term to build wealth, I’d much rather follow billionaire investor Warren Buffett’s advice than buy the cryptocurrency.

Warren Buffett vs Bitcoin

Bitcoin is a strange asset. Its supporters believe it will transform the world, becoming a global currency that can’t be manipulated by governments. On the other hand, its critics think the cryptocurrency is a safe haven for crooks and can be easily manipulated.

Whatever camp one sits in, there’s a clear drawback with Bitcoin. It is highly volatile. The price of the cryptocurrency has gyrated widely this year, and it’s challenging to predict how much one coin will be worth from one day to the next.

As such, Bitcoin is only really worth as much as two parties are willing to pay at any one point in time, and that’s a big issue for investors, particularly long-term investors.

Buffett’s investment strategy has always been based on the idea of buying and holding profitable businesses. His track record of success stands testament to the fact that this strategy works exceptionally well. What’s more, buying productive, cash generative businesses gives investors a backup.

There will always be a fundamental business behind the stock price. So, even if the price falls 50%, that doesn’t necessarily mean the company is worth 50% less.

The same cannot be said for Bitcoin as the price of the cryptocurrency is determined by supply and demand.

Investing for the long term

Warren Buffett’s strategy makes it easier to invest for the long term. Buying high-quality businesses is a sensible strategy, no matter what. It’s also easier to hold on to these stocks through periods of economic uncertainty.

For example, earlier this year, in the March stock market crash, shares in some high-quality FTSE 100 businesses fell 50%. However, their underlying operations have emerged from 2020 in a stronger position. Investors who held the shares through the market storm have been well rewarded.

Investing is a marathon, not a sprint. It’s possible to make large, quick profits, but staying wealthy requires a good strategy and patience. It’s much easier to stick with companies with strong underlying fundamental businesses than volatile financial assets like Bitcoin in the long run.

That’s why I’d rather follow Warren Buffett’s advice and buy high-quality businesses than own Bitcoin to get rich. That’s not to say an investor should avoid Bitcoin entirely. It may fit into some portfolios.

However, I’m more comfortable owning pieces of real businesses I know and use every day. I think that’s a much more sustainable investment strategy that can stand the test of time. It has certainly worked incredibly well for Warren Buffett in the past.

The post Forget Bitcoin! I’m following Warren Buffett’s advice to get rich appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Motley Fool UK 2020