Why I ignored Warren Buffett's advice and invested in cryptocurrencies

The multibillionaire is a well-known critic of digital coins but it can be worth having a small exposure to them, analysts say

I’m what you call a set-and-forget type of investor, one who is influenced by the likes of legendary multibillionaire Warren Buffett, who once said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

It’s valuable advice that I’ve taken to heart over the years – I transfer a certain amount of money every month to my low-fee exchange-traded funds and that’s pretty much the only interaction I have with my investments.

While set and forget might be my mantra, I do occasionally struggle to ignore stock market volatility — which has (understandably) been on the increase of late thanks to surging inflation and Russia’s invasion of Ukraine.

But I’ve managed to stay the course thanks to Mr Buffett, the world’s sixth-richest person with a net worth of $115 billion, and his wise advice.

However, I took a leap into the unknown about six months ago, going against the advice of my 91-year-old investment mentor (cue pangs of guilt), and jumped into the roller coaster world of cryptocurrencies.

I can still hear Mr Buffett’s comments about cryptocurrencies reverberating around my living room during a 2018 interview with US news channel CNBC: “In terms of cryptocurrencies generally, I can say almost with certainty that they will come to a bad ending.”

Ouch. Perhaps he was right when you consider Bitcoin hit a record high of $68,000 in November last year, then suffered a mighty crash in January to settle just above $35,000, dragging all other digital coins down with it in the process.

While it’s been a bad start to the year, Bitcoin this week started another rally and was trading above $44,000 at the time of writing. But who knows what tomorrow will bring – or if Elon Musk will start tweeting about Dogecoin again, which usually results in a massive surge in cryptocurrency prices.

It wasn’t that I set out to ignore Mr Buffett, who is a well-known critic of cryptocurrencies.

My decision to dive into cryptocurrencies wasn’t so much a fear of missing out, or Fomo as my daughter calls it. It was, I reasoned, a learning experience: if I am writing about cryptocurrencies as part of my job as personal finance editor at The National, then I need to know about investing in digital currencies.

And what a learning experience that has been. First came the research and deciding which cryptocurrencies I wanted to invest in and the platform I would use. While researching, I’d come across “inspirational” stories about people who had become multimillionaires overnight.

One guy, apparently, invested just £100 ($132.70) in meme coin Shiba Inu in its very early days and had made millions. Today, Shib, as it’s known, is trading at about $0.000026. I can’t imagine just how low it was when he bought in.

But it’s easy to see how people can get carried away by these types of stories. Who doesn’t want to quit their job and be a millionaire on the back of a £100 lark?

Which reminds me. One acronym that I have learnt during my time in the cryptocurrency world is Fobo — the fear of better options.

To prevent Fobo, I've learnt not to get carried away by click bait headlines: why you should buy Solana (currently trading in the $103 range), or why Cardano ($0.96-ish) has a better future than Ethereum ($2,988) because of its proof-of-stake blockchain platform, but has still yet to prove itself.

Or even that Shib will one day climb to a lofty height of one cent. Just 0.999974 of a cent to go, which doesn’t seem like much but in the cryptocurrency world could be the equivalent of a mountain. Although I do like imagining all those new millionaires and billionaires it would create if that ever happened.

The golden rule of investing is to never invest what you can’t afford to lose – and this also applies to cryptocurrencies. Advisers recommend a 5 per cent to 10 per cent exposure and this is a wise rule to follow.

I’m also applying my set-and-forget mantra to cryptocurrencies – but with a disclaimer. If I one day wake up to find that I’ve become an overnight millionaire, I will have no qualms about cashing out.

Until then, however, it’s back to following Mr Buffett’s advice and remembering to keep my emotions in check.

As he once said: “The most important quality for an investor is temperament, not intellect.”

Updated: March 04, 2022, 4:05 AM
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