Structure Matters: Creating a Common Culture: Berkshire and Bitcoin

All Eyeballs Descending on Omaha for The Berkshire Annual Meeting

On May 6th, some 30,000 Buffettiers will gather in Omaha (Rural America) for the Berkshire Hathaway annual shareholder meeting. This is a weekend that many long-term shareholders look forward to and cherish each year. The event is as much about the success of their leadership and their personal investments as it is about a lifestyle and philosophy. It is also about a sense of community and the power of an ecosystem. Last year, our Director of Research, Cinthia Murphy, attended the event and wrote about her experience. Read that report here: What We Learned From Buffett and Munger at BRK 2022. Of course, anyone who has listened to Mr. Buffett or Mr. Munger over the years should appreciate that the foundational success of this genius is from pure focus on old-school fundamental values, and not as an early adopter or technologist. Additionally, the company’s leadership has consistently pushback against gold as a “store of value” investment because its use case does not align with their values around fundamental investing.  All this is to say that asking Mr. Buffett or Mr. Munger about Bitcoin as a technology or store of value is just silly. Rather, we would suggest a better line of questioning that focuses on the common core principles. There is zero probability that Mr. Buffett or Mr. Munger will embrace Bitcoin investment directly, but let’s not forget that the basic tenants and philosophy are in fact shared among the two communities.

Here are some points to consider regarding the intersection of Berkshire Hathaway’s principles and Bitcoin:

  1. Financial and Fiscal Discipline: Berkshire has always been disciplined with its use of cash and issuance of shares. The limitation of the number of Bitcoin at 21 million is aligned with Berkshire’s belief in buybacks and reducing the denominator on its value creation. 
  2. Rural America: Check out the video by Peter McCormack, What Bitcoin Did.
  3. Trust and Decentralization: When they acquire a company, Berkshire issues a value proposition that the company will maintain its independence and not be consolidated. This philosophy fosters trust from entrepreneurs and transparency for investors, and is a core principle of Bitcoin, aka DEFI.
  4. Brand awareness: The importance and value of a brand ecosystem (Coca Cola, American Express, Apple and Bitcoin) is about changing the lives of billions of people.
  5. Store of Value: Aren’t stocks a long-term store of value? Berkshire (BRK) is the ultimate example.

More Questions for the Oracle of Omaha¹

We think there are at least 12 other common principles between these two communities but believe we should ask a few more questions about Berkshire’s leadership before we can be sure about our views.

  1. We can’t find a year where Berkshire paid a dividend. If dividend distribution is not an important premise behind shareholder retention, then why does it matter that Bitcoin doesn’t pay a dividend or earn cash flow? According to Motley Fool, Berkshire earns about $6 billion from dividend income each year.²
  2. What is the “use case” for having a $344³ billion portfolio of stocks beyond future capital appreciation? Does this not suggest that there is no real use case for owning shares in Berkshire stock beyond a thesis that the Board of Directors will skillfully invest to create retained earnings that later can be market-to-market at a multiple of the firm’s book value, or other stock price metrics? Maybe there is a breakup value, but let’s be truthful – no one hopes for that day! (Truth – most people should be grateful that Berkshire was created as a store of value led by so much pure genius.) Regardless, what is the use case for owning stocks as a derivative beyond a Board of Directors and Management team that creates greater value than yesterday’s investment? Obviously this presents questions about the stock portfolio which includes a large concentrated position of 907 million shares in Apple stock, worth some $150 billion (AP $169). How did Berkshire vote its shares on Tim Cook’s compensation package? Was Berkshire the reason why Mr. Cook’s pay was reduced by 40%, or did he really volunteer for a pay reduction? (Both Mr. Buffett and Mr. Munger are each paid only $100,000.)
  3. Technology Impacts on Business? As someone who admits to not knowing much about technology, how are you confident that Apple’s technology is right for the future, won’t be disrupted, or will benefit from AI or blockchain? Mr. Buffett – please talk to us about these technology trends! How do you feel they will impact the industries you are currently invested in and operating businesses in? What is your cap expenditure on AI and Blockchain?
  4. Berkshire Digital Asset Investment Platform Exposure. We know you made an exception in investing in NU Holdings ($500 million) as a banking and onramp platform. Congrats on being open-minded. What made this emerging market opportunity worth the risk? It seems that NU Holdings trades at 7x to revenues with about 80 million in members vs Coinbase at 5x. Does this reflect regulatory challenges in the US market, or just a value opportunity?
  5. DEFI vs Centralized Management Style. We admire your openness as the CEO of Berkshire and your noted decentralized style of management. Often, when you buy a company, you transfer value in the form of Berkshire shares to the founder and bet that the alignment of incentives works to everyone’s benefit. It is enjoyable to meet all the CEOs of companies owned by Berkshire. How do you manage the continued alignment of interests? Are those who sell to you allowed to diversify? We appreciate that this is a legitimate securities transaction, but how is this different from a token deal where BRK is paying for a business that is out of the pockets of a Buffeter? Assuming so, is this not a deal based upon TRUST by both parties at the risk of shareholders?

Maybe a thesis that Berkshire Hathaway and Bitcoin have more in common than just the B in the name sounds crazy to some folks. Of course, what we are proposing may be controversial on both ends, but disagreement is okay. Afterall, we are the ETF Think Tank, and our community is used to us being on the cutting edge. Part of our value proposition is to engage our community with research, tools, and shared insights that both expand and enrich our membership. Speaking of communities, we look forward to seeing so many of our ETF Nerd members at the Inside ETFs Conference. Do reach out before you sign up to learn about other benefits and join us this Thursday for our Event Highlight Happy Hour!


² The Motley Fool

³ The Motley Fool


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