Read on Twitter
1/24
Why I'm holding $ETH. A primer on investing strategy.
AKA - Why Warren Buffet is still probably a better investor than you despite his stance on crypto, and what you can learn from it:
Why I'm holding $ETH. A primer on investing strategy.
AKA - Why Warren Buffet is still probably a better investor than you despite his stance on crypto, and what you can learn from it:
2/24
Warren Buffet has a bad take on crypto.
That's fine, the 90 year old investor cleverly invests in only what he can understand, and I would not expect anyone who was literally born in the year where sliced bread and the car radio were created to understand the blockchain.
Warren Buffet has a bad take on crypto.
That's fine, the 90 year old investor cleverly invests in only what he can understand, and I would not expect anyone who was literally born in the year where sliced bread and the car radio were created to understand the blockchain.
3/24
When you look at Warren Buffet's portfolio today, you go "oh, that's kind of meh" his returns are poor, the companies are mostly static, and if you tried to replicate wealth by building that portfolio today, you'd be out of luck.
When you look at Warren Buffet's portfolio today, you go "oh, that's kind of meh" his returns are poor, the companies are mostly static, and if you tried to replicate wealth by building that portfolio today, you'd be out of luck.
4/24
And, this is what most people fail to understand about success, either in product or finance.
Rarely can you ever be successful by repeating the actions that someone did historically.
(Worth a read on this is Outliers by Malcom Gladwell)
And, this is what most people fail to understand about success, either in product or finance.
Rarely can you ever be successful by repeating the actions that someone did historically.
(Worth a read on this is Outliers by Malcom Gladwell)
5/24
In part, because what works then doesn't work now.
And, because when you look at successful people, companies and investments, there are a lot of things they did that they were successful "in spite of" not "because of"
In part, because what works then doesn't work now.
And, because when you look at successful people, companies and investments, there are a lot of things they did that they were successful "in spite of" not "because of"
6/24
So what does any of this have to do with crypto?
Don't worry, we'll get back to that, just bear with me on this life lesson first.
So what does any of this have to do with crypto?
Don't worry, we'll get back to that, just bear with me on this life lesson first.
7/24
When we look at the portfolio of Buffet, many people point to stocks like Coca-Cola ($KO) and say "that isn't a good investment, why would he hold that, he's dumb!"
And they are partially right. Coca-Cola is not a good investment - **today.**
When we look at the portfolio of Buffet, many people point to stocks like Coca-Cola ($KO) and say "that isn't a good investment, why would he hold that, he's dumb!"
And they are partially right. Coca-Cola is not a good investment - **today.**
8/24
Warren Buffet however did not buy Coca-Cola today.
Warren Buffet bought most of his share of Coca-Cola back in 1988 back when Coca-Cola was worth $16.3B and with 356M shares out standing, he paid roughly $2.40/share.
Warren Buffet however did not buy Coca-Cola today.
Warren Buffet bought most of his share of Coca-Cola back in 1988 back when Coca-Cola was worth $16.3B and with 356M shares out standing, he paid roughly $2.40/share.
9/24
If we actually account for the stock splits and selling that happened over the years though, then Buffets cost basis back in 1988 would have been more along the lines of $0.72/share
If we actually account for the stock splits and selling that happened over the years though, then Buffets cost basis back in 1988 would have been more along the lines of $0.72/share
10/24
So why hasn't Buffet ever sold these stocks when he is now up over 40x on his investment?
The dividends.
So why hasn't Buffet ever sold these stocks when he is now up over 40x on his investment?
The dividends.
11/24
You may look at the average 3.3% dividend yield on Coca-Cola and yawn.
In crypto we'd consider that a dirt cheap funding rate on an investment.
You may look at the average 3.3% dividend yield on Coca-Cola and yawn.
In crypto we'd consider that a dirt cheap funding rate on an investment.
12/24
But, that's because you are thinking of dividend yield on if you bought the stock today, and not considering it on your cost basis.
But, that's because you are thinking of dividend yield on if you bought the stock today, and not considering it on your cost basis.
13/24
If you had bought those $KO shares in 1988 at a cost basis of $0.72 then the $1.64 a year that each share pays out is actually 227% annual yield on your cost basis, and for the traditional stock market that's pretty good.
If you had bought those $KO shares in 1988 at a cost basis of $0.72 then the $1.64 a year that each share pays out is actually 227% annual yield on your cost basis, and for the traditional stock market that's pretty good.
14/24
In fact, Warren Buffet's stock in Coca-Cola is now worth $21.8B and has paid him a lifetime of $7.2B in dividends for a total return of $29B (29x his initial investment) and will continue to pay him around $719M a year.
In fact, Warren Buffet's stock in Coca-Cola is now worth $21.8B and has paid him a lifetime of $7.2B in dividends for a total return of $29B (29x his initial investment) and will continue to pay him around $719M a year.
15/24
Because his cost basis is paid off many times over, its almost impossible for him to have an investment that is more effective, as selling would trigger capital gains on the principle, buying would create a cost basis and buying something new would shift the market.
Because his cost basis is paid off many times over, its almost impossible for him to have an investment that is more effective, as selling would trigger capital gains on the principle, buying would create a cost basis and buying something new would shift the market.
16/24
And this is where we come back to crypto.
While something like $BTC has to be sold to capture the value, assets like $ETH (and some DeFi assets) benefit from things like staking or yield allowing them to capture value over time as cash.
And this is where we come back to crypto.
While something like $BTC has to be sold to capture the value, assets like $ETH (and some DeFi assets) benefit from things like staking or yield allowing them to capture value over time as cash.
17/24
This means as they appreciate in value, the staking returns on them against your initial cost basis are actually many times higher than the current cost basis.
But you don't pay tax on the earned principle by staking.
This means as they appreciate in value, the staking returns on them against your initial cost basis are actually many times higher than the current cost basis.
But you don't pay tax on the earned principle by staking.
18/24
So people keep asking me what price I'm selling $ETH at, and my answer is - I'm not.
I agree with people like @iamDCinvestor who have been a big proponent of the idea that real wealth in $ETH is captured from staking yield, not sales.
So people keep asking me what price I'm selling $ETH at, and my answer is - I'm not.
I agree with people like @iamDCinvestor who have been a big proponent of the idea that real wealth in $ETH is captured from staking yield, not sales.
19/24
Ethereum is set up to be the new internet, the new financial infrastructure and PoS and EIP-1559 make it clear that its use will capture immense value.
Ethereum is set up to be the new internet, the new financial infrastructure and PoS and EIP-1559 make it clear that its use will capture immense value.
20/24
I'll just continue to buy ETH adding to my total units whether the market goes up or down.
Holding that long term and letting the dividends do the work for me.
I'll just continue to buy ETH adding to my total units whether the market goes up or down.
Holding that long term and letting the dividends do the work for me.
21/24
One day far in the future, assets like $ETH will probably not seem attractive if you calculate the staking yield against their current price, but off of their early cost basis they'll be infinitely valuable.
One day far in the future, assets like $ETH will probably not seem attractive if you calculate the staking yield against their current price, but off of their early cost basis they'll be infinitely valuable.
22/24
At that time, young investors will look at old guys in crypto and think we're out of touch with how to make money in the modern day; and they'll be right, because we already made our money, and what worked for us won't work for them.
At that time, young investors will look at old guys in crypto and think we're out of touch with how to make money in the modern day; and they'll be right, because we already made our money, and what worked for us won't work for them.
23/24
If you are in crypto and not Coca-Cola stock, it's not because you're smarter than Warren Buffet.
In fact, most people will likely sell market to the markets, which means Buffet was still a way smarter investor.
If you are in crypto and not Coca-Cola stock, it's not because you're smarter than Warren Buffet.
In fact, most people will likely sell market to the markets, which means Buffet was still a way smarter investor.
24/24
People like Buffet know that it isn't the individual stock that defines the ability to generate wealth. It's the playbook strategy and which asset you apply it to on that day.
Only a few assets offer that opportunity today, if you can learn from his playbook.
People like Buffet know that it isn't the individual stock that defines the ability to generate wealth. It's the playbook strategy and which asset you apply it to on that day.
Only a few assets offer that opportunity today, if you can learn from his playbook.
PS - None of this is financial advice. What is right for me, may not be right for you. What is right for Buffet may not be right for any of us, and any tech can blow up or be replaced.
PPS - Apologies to sliced bread for dunking on it. It's still a pretty useful invention.
PPS - Apologies to sliced bread for dunking on it. It's still a pretty useful invention.
