Famed investors Warren Buffett and Charlie Munger have strongly criticised cryptocurrencies and machine intelligence at the annual shareholder meeting of Berkshire Hathaway, the holding company they serve as chair and vice-chair respectively.
Asked about AI’s potential to improve capital allocation, Munger said “ I think there is more hype in that field [AI] than there is achievement. I do not think the world will be changed that much by machine intelligence.”
“We are always trying to get something that is worth buying,” he added. “People want to find some formula – I call this ‘physics envy’. People want a formula, but the world isn’t like physics outside of physics and false precision does nothing but get you into trouble.”
“You have to master the general ideas and work to improve your judgement. I do not think most people have a lot to gain from machine intelligence.”
Buffett added “I don’t think that they bring much to the able in terms of capital allocation or investing. I may be missing something entirely.”
To which Munger added “You are missing a lot of very remunerative fee-earning twaddle.”
Another investor asked why Berkshire Hathaway had largely avoided technology companies given they meet the criteria like having few competitors that Buffett and Munger often espouse.
Buffett said Berkshire’s largely tech-averse because he doesn’t consider technology companies to be special.
“We don’t think of whether we should be in tech companies or not,” he said. “We do get into durability and competitive advantage.”
Those factors recently led Berkshire to make a substantial investment in Apple, “because I came to certain conclusions about the intelligence with which the capital would be deployed” and also because he assessed the Apple ecosystem and its likely permanence.
“I didn’t go into Apple because it was a tech stock in the least,” he said. “I went into Apple and I don’t think that required me to take apart an iPhone. It was much more the nature of consumer behaviour” that led him to invest.
But Buffett lamented he missed out on two tech companies: he described Amazon.com as “close to a miracle” but said “the problem is when something looks like a miracle I tend not to bet on it.”
“I think it is a miracle to be doing AWS and changing retail at the same time and without a lot of capital and the speed and to do it with the effectiveness of what Amazon has done.”
“I had a very, very, very high opinion of Jeff Bezos’ ability when I met him, and I underestimated him.”
On Google, Buffett said he saw enormous potential ahead of its IPO, but did not think the company would dominate its market and felt online advertising could become like airlines – several players in constant search of profits.
“I made a mistake in not being able to come to a conclusion,” he said.
Buffett and Munger admitted their age (87 and 94, respectively) mean some tech investments may pass them by.
“We were not ideally located to be high-tech wizards,” Munger said, adding “I have been to Google headquarters. It looks to me like a kindergarten.”
“A very rich kindergarten.”
Buffett also said Berkshire didn’t invest in Microsoft because of mistakes, but latterly because he’s friends with Bill Gates and doesn’t want the appearance of improper entanglements.
Another shareholder question asked why the pair haven’t invested in cryptocurrencies, given their ability to disrupt the banking businesses in which Berkshire has invested.
Buffett’s response was scathing: he equated cryptocurrencies with a stamp collection, saying they have no worth unless someone else wants to buy them and that while demand may persist, it will eventually end.
The cheque is in the #FAIL
He also said cryptocurrencies lack value because they do not produce anything.
“If you had bought gold at the time of Christ and you figured the compound rate on it, it is maybe a couple of tenths of a percent.”
He’s also unconvinced that cryptocurrencies are valuable as a means of exchange.
“The cheque is a wonderful idea but it does not make the cheque intrinsically valuable.”
He therefore predicted that “Cryptocurrencies will come to a bad ending because nothing is being produced in the way of value from an asset. There is also a problem that it draws in a lot of charlatans who are trying to create exchanges or whatever it may be.”
“It is something where people who are of less than stellar character see an opportunity to clip people who are tying to get rich because their neighbours are getting rich buying this stuff that neither of them understands.”
“It will come to a bad end.”
Munger was even harsher.
“For me it is just dementia,” he said. “Traders who go into trading cryptocurrency, it is just disgusting. Someone else said they are trading turds and you decided I just can’t be left out.” ®