How to invest like Warren Buffett in alternative assets

Value investing in non-traditional assets has the potential to diversify portfolios and protect against inflation

Berkshire Hathaway chairman Warren Buffett is a proponent of the value investing strategy. Reuters
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Investing in alternative assets, such as private equity, real estate, commodities and hedge funds, has become popular in recent years.

These investments offer the potential for diversification and higher returns compared with traditional investments like stocks and bonds.

Value investing — a favoured strategy of Berkshire Hathaway chairman and billionaire Warren Buffett — is when an investor buys undervalued assets that have the potential to increase in value over time.

The same strategy can be applied to alternative assets and has the potential to generate even greater returns, albeit with a higher risk profile.

By leveraging multiple assets in the investment market, investors can take advantage of the potential of alternative asset classes and benefit immensely from their investment decisions.

Portfolio diversification

One of the main benefits of investing in alternative assets is portfolio diversification.

Investing in assets that are not highly correlated with each other can help reduce the overall risk of a portfolio.

For example, real estate investments tend to have a low correlation with stocks and bonds, meaning they can help reduce portfolio volatility.

Investing in a diverse range of alternative assets can help to reduce risk even further.

According to a study by Fidelity Investments, investors who held a diversified portfolio of digital assets outperformed those who only held Bitcoin over a one-year, three-year, and five-year period — proving that a diversified portfolio can outperform even the highest class of alternative investment.

Private equity investments, for example, can provide exposure to a variety of different industries and markets, which can help protect against the downside risk of any one investment.

Protection against inflation

Many alternative assets, such as commodities and real estate, have historically performed well during inflationary periods.

This can help to protect against the erosion of the purchasing power of an investor’s portfolio over the long term.

In contrast, traditional investments like stocks and bonds may struggle during times of high inflation.

Investing in digital assets, such as cryptocurrencies and non-fungible tokens, can also provide a hedge against inflation.

Some experts believe that the decentralised nature of digital assets could make them a valuable store of value during times of inflation or economic uncertainty.

This was justified in a 2023 report by Citi Private Bank, which showed that alternative assets such as real estate, infrastructure and commodities have historically outperformed during periods of high inflation.

Unique investment opportunities

Investing in undervalued assets that have the potential to increase in value over time is the foundation of value investing.

Many alternative assets have the potential to generate higher returns compared with traditional investments.

For example, private equity investments have historically outperformed the stock market. Similarly, real estate investments can offer the potential for both rental income and capital appreciation, creating multiple revenue streams.

Digital assets, such as cryptocurrencies and NFTs, have become increasingly popular as investment options. While still relatively new and volatile, these assets have the potential to generate significant returns.

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Investing in alternative assets can also provide access to unique investment opportunities that may not be available through traditional investments.

For example, investing in real estate can expose investors to a particular market or sector that they may be unable to access through traditional investments.

Similarly, investing in hedge funds can provide access to investment strategies unavailable to individual investors.

Digital assets, in particular, have opened up a new frontier of investment opportunities. Blockchain technology has made it possible to create new types of digital assets, such as NFTs, which can represent anything from art to music to video games.

Asset-backed NFTs are a new and innovative use case for blockchain technology. These tokens represent ownership of an underlying asset, such as a physical piece of art or real estate, and are secured by the blockchain network.

A study by Ernst & Young found that 60 per cent of institutional investors plan to increase their allocations to alternative investments, highlighting the trend towards exploring unique investment opportunities beyond traditional asset classes.

Value investing in alternative assets can provide investors with the potential for portfolio diversification, protection against inflation, the opportunity for higher returns, and access to unique investment opportunities.

It is important to conduct thorough research and due diligence before investing in any alternative asset
Tim Bhatnagar, co-founder, Paiverse

However, it is important to conduct thorough research and due diligence before investing in any alternative asset.

Additionally, the regulatory landscape for digital assets is still evolving, so investors must be mindful of the potential risks and challenges associated with these investments.

Like any other investment strategy, the key is to conduct thorough due diligence on the company or platform providing these opportunities and of the team behind it.

Nonetheless, for those willing to take on the added risks, the potential rewards of value investing in alternative assets can be significant.

Tim Bhatnagar is the co-founder of asset-backed NFT platform Paiverse

Updated: May 16, 2023, 4:00 AM