Here’s what Buffett just bought and what you should know about it. Recent years have seen cryptocurrencies advance from obscure concepts with niche popularity to mainstream assets that are increasingly common among investors. This evolution was driven in part by bitcoin’s meteoric rise late in 2017 when the well-known crypto coin leaped to almost $20,000 in value (if only briefly). Since then, more people seem to be … The Office of the Comptroller of the Currency has been evaluating the cryptocurrency space for years, well before it publicly announced banks could provide services in the field last month. When I first started trading financial markets there was always one asset class that stood out to me as the best way to capture these trends, and not just for its pre-eminent size, liquidity and hi…
Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) recently released its second-quarter 13F filing with the SEC, giving investors a snapshot of Berkshire’s $240 billion stock portfolio. And while there were a few surprises, none was more shocking to investors than one particular stock that has been added – a gold mining stock.
Here’s a rundown of the details of Berkshire’s gold investment, why it’s such a surprise, and why Warren Buffett and his team may have chosen this surprising route for some of their investment dollars.
Image source: The Motley Fool.
Berkshire Hathaway reports the composition of its massive stock portfolio once per quarter, 45 days after each quarter ends. So, we just recently got a glimpse of how Berkshire’s portfolio looked at the end of the second quarter of 2020.
To the surprise of many investors, the company’s SEC filings revealed a stake in Barrick Gold (NYSE:GOLD), a gold and copper miner. Berkshire reported a stake of about 20.9 million shares, which has a market value of approximately $564 million right now.
Now, this is a pretty small investment by Berkshire’s standards, making up less than 0.3% of the portfolio. However, the simple presence of a gold stock in a portfolio that is mostly controlled by Warren Buffett is indeed surprising.
This was a surprising investment simply because Warren Buffett has a long history of negative commentary on gold as an investment vehicle.
The general idea is that Buffett views gold and other precious metals as unproductive assets, meaning that they don’t generate income, pay a dividend, or make a product. Their value is simply derived from the assumption that someone else will be willing to pay more for them in the future. Collectibles, artwork, and cryptocurrencies also fall into this category. And Buffett has historically viewed unproductive assets as inferior investments to productive assets like stocks, bonds, real estate, and owning entire businesses.
Buffett has pointed out that gold is a “huge favorite of investors who fear almost all other assets, especially paper money.” Buffett clearly doesn’t fear U.S. currency – more than $140 billion dollar-denominated cash and equivalents are currently on Berkshire’s balance sheet.
In addition, gold has the added disadvantage of not being very useful, aside from making jewelry and in small quantities in some electronics. This is a sharp contrast to many other commodities, like copper and steel, that have widespread industrial applications and therefore have a natural source of demand to support their prices.
To be perfectly clear, we don’t know for sure if Warren Buffett himself is responsible for the gold mining investment that is now in Berkshire’s portfolio. Buffett’s two stock-picking lieutenants, Ted Weschler and Todd Combs, each manage billions of dollars of Berkshire’s portfolio. The pair has certainly been responsible for some of the more surprising investments in Berkshire’s recent past. However, Buffett has changed his tune on investments in the past (like airlines), so it’s certainly possible that Buffett himself pulled the trigger.
It’s also important to note that gold mining is a business, and therefore is a productive asset. Sure, its performance will depend on the price of gold to some extent — but this is completely different than if Berkshire had simply bought physical gold.
Maybe Buffett or one of Berkshire’s stock pickers saw gold as a temporary safe haven during the COVID-19 pandemic? Maybe one of them just saw a short-term mispricing opportunity? After all, the price of gold has risen by 15% since the end of the second quarter. Or, maybe — just maybe — Warren Buffett could be changing his mind on gold.
Author: Matthew Frankel, CFP
NetNewsLedger – Which Cryptocurrencies Are Most Investable?
Recent years have seen cryptocurrencies advance from obscure concepts with niche popularity to mainstream assets that are increasingly common among investors. This evolution was driven in part by bitcoin’s meteoric rise late in 2017 when the well-known crypto coin leaped to almost $20,000 in value (if only briefly). Since then, more people seem to be taking bitcoin and other cryptocurrencies seriously — particularly among millennials, who are increasingly trusting cryptocurrency even over the stock market.
Indeed, research in 2019 indicated that nearly half of millennials would prefer to invest their money in cryptos than in stocks — a fairly remarkable finding given the relative newness of cryptocurrency. This also introduces an interesting question though, which is what cryptocurrencies make for the most logical investments? While bitcoin undoubtedly leads the pack, a budding investment market can’t be sustained entirely by one asset. So in this article, we’re going to look at the handful of crypto options that appears to generate the most investment-related attention.
As noted, bitcoin leads the pack. It has the highest market cap and value (by far) among all cryptocurrencies and is the asset that tends to drive the headlines. It is also the asset that has generated legitimate fortunes for thousands of people around the world already. For these reasons, bitcoin can be a sort of magnet for crypto investors — the thing that drives them to the market, and the asset they’re most intrigued by. That said, there are some who still believe that bitcoin is too risky for the average investor, given its high price and burst “bubble” potential. We would say that it’s certainly a cryptocurrency worth knowing and considering, but that it should not be the only option prospective investors consider.
While it sounds almost too obvious, litecoin can fairly be described as “bitcoin lite.” It’s an extremely similar crypto token in terms of design and use, but it has far less value and a significantly lower market cap. While there are reasons to doubt its long-term potential to eclipse more robust cryptocurrencies, some investors like litecoin for its potential to follow the leaders. In other words, if bitcoin rises by 20%, litecoin might tend to do the same. This, coupled with the fact that it’s cheaper to invest in, makes it an interesting option.
Ethereum is also a long way behind bitcoin when it comes to value and market cap — but it’s much closer than litecoin, and indeed much closer than most cryptocurrencies. It appeals to investors for this reason, but also because it represents a slightly different technology that some credit with massive long-term potential. Ethereum is built to enable digital transfer functions, often called “smart contracts.” And some exact such functions to become exceedingly popular in the years to come, such that this crypto option becomes a busy foundation for all kinds of activity. It’s worth noting that ethereum now has several competitive cryptocurrencies that are capable of establishing similar systems. But generally, investors still value this option for function.
Ripple’s value pales in comparison to that of any of the coins discussed above. However, it has two things going for it among crypto investors right now. The first is that it’s trending in the right direction. Investors looking to trade Ripple have seen its price surge in recent months indicating that the enthusiasm around this crypto option in 2019 was well-founded, and it may well have the potential to keep going up. The second thing this particular option has going for it, meanwhile, is an immense market cap. Like ethereum, ripple is valued for its long-term potential as a functional asset (in this case helping to make international transactions smoother for banks and other major entities). And even if its value remains small, the market cap may indicate how many people are willing to buy into this potential.
An offshoot of bitcoin (in that it was literally a “forked” alternative that branched off of the original cryptocurrency), bitcoin cash is a bit of a strange asset to consider from an investment perspective. That’s because it was designed to be easier to spend than bitcoin — meaning it’s meant more to be money than to be an investable asset. Nevertheless, it is still tradable, and because it has one of the highest values among cryptos, it’s one that a lot of investors consider.
The list could go on well beyond these five choices, particularly when you consider stablecoins as well (meaning cryptos, like Tether, that are tied to concrete assets to stabilize value). But for those who are just beginning to explore the crypto sector, these are generally the options that first come up.
Author: Julia Bailey
The OCC’s Crypto Custody Letter Was Years in the Making
A federal banking regulator’s decision to let banks provide crypto custody services may have seemed out of the blue, but the agency has been looking at cryptocurrencies for years.
The Office of the Comptroller of the Currency (OCC) announced last month that federally regulated banks could provide services to crypto startups in addition to custody. It turns out the OCC was already leaning toward the move before Acting Comptroller Brian Brooks took the top job at the agency.
Related: Anchorage Is Streamlining Custody of Tokensoft’s ERC-1404 Security Tokens
“Before we actually put pen to paper that process can sometimes take a while,” he said.
The OCC’s interpretative letter last month opened the door for banks to provide services to crypto companies in addition to custody services for cryptocurrencies directly, but it’s unlikely that banks will immediately start providing either service.
Rather, these letters are supposed to help banks that are also interested in crypto determine whether it makes sense for them to begin getting involved in the space, Gould said.
Related: Unpacking the Avit, Avanti Bank’s New Digital Asset Being Built With Blockstream
Banks still need to ensure they have proper risk management practices and otherwise ensure they are prepared legally to offer these services before they can actually do so.
The process of creating an interpretive letter typically begins when a bank makes a request, or the OCC sees a number of similar requests from different institutions.
The actual act of drafting interpretive letters can take weeks or months, Gould said.
“A lot of times we just provide informal advice, meaning advice about what we think is okay, and when we do [we do] so without putting anything in writing,” he said. “But sometimes we put things into these interpretive letter forms so again it’s a function of kind of the nature of the issue.”
The OCC looks at how many banks are asking about a specific issue or whether the regulatory agency itself thinks there might be a commonly held question, with these factors determining whether there will be an informal response or a formal letter.
“The kind of process to actually write an interpretive letter like this one, that doesn’t necessarily take a huge amount of time,” he said. “But kind of thinking through the legal and other issues associated with an issue that can take a lot longer depending upon the complexity of the issue.”
The letter is just the beginning of a longer process. The OCC will interact with banks on their next steps if they do decide to pursue crypto services.
“There are a whole host of legal, regulatory and supervisory expectations that we have,” he said. “Especially with new activities that involve kind of iterative and interactive dialogue with the OCC supervisors, about how XYZ activity can be done in a safe and sound fashion, whatever risks are associated when activity can be appropriately kind of managed and so forth.”
The OCC has published more than 1,100 letters it believes are precedential or otherwise of interest to the general public.
Gould did not say how long the OCC had been looking at last month’s interpretive letter on crypto services specifically, but reiterated that it could take the agency weeks or months to draft a 10-page letter.
The OCC has been considering the legal and supervisory questions around crypto for years, he said, prior to Brooks joining the agency from his previous role at Coinbase. But Brooks has been able to bring specific knowledge about the crypto space to the agency.
“It is certainly the case, however, that because we have an Acting Comptroller who is exceptionally knowledgeable about these areas that has been hugely beneficial in terms of the agency’s thinking and understanding,” Gould said.
Banks that are now interested in branching out into crypto should reach out to their local OCC supervisors if they have additional questions, and Gould said he hopes institutions that are looking at crypto reach out sooner than later.
“This is and will continue to be a learning process for us from a supervisory perspective and so we really need that engagement and welcome it on our end,” Gould said.
- The OCC’s Crypto Custody Letter Was Years in the Making
- The OCC’s Crypto Custody Letter Was Years in the Making
Author: Nikhilesh De
Why I Started to Trade FX
If there’s one thing in life that is guaranteed, it is that everything is always changing – and no-where is this constant change more apparent than in our markets. The sum of billions of daily transactions and assessments of risk, movements in financial markets and asset prices flow as the marketplace adapts to new data or sentiment, and they can be ruthless.
Through recent years the pace of change has been quicker than ever in financial markets. Swathes of new products and assets have appeared, from cryptocurrencies to fractional shares, and old structures and legacies have been swept away. The gradual movement in underlying trends can add up to huge changes over time, and major events can quickly translate into high volatility. When I first started trading financial markets there was always one asset class that stood out to me as the best way to capture these trends, and not just for its pre-eminent size, liquidity and history – I believe FX is one of the best arenas to trade the macro themes at play in the world around us.
Humans have a deep need to trade in anything useful – gossip, businesses, avocados – you name it. It has been key to our evolution and the spread of prosperity. Identifying the macro themes in our globalized society, and working with them, is the core of what successful enterprises or traders do – a business might anticipate and build demand and then supply it with the right product or service, and a trader might identify long-term and short-term trends in multiple assets to decide when to enter or exit a position.
Trade in ideas and information is not equally distributed and never will be. However this is where the foundation of the financial market, and technical analysis itself, comes into play – everyone can see what the price is, and can find out what it used to be. By knowing what price willing sellers and buyers are transacting something right now compared to history, you have a good idea of what the current trend or sentiment of the market is. But this price information is only as good as the participants available, and no market is more liquid than FX, with average daily turnover in the institutional market of trillions of dollars.
When I took the plunge and started to take small positions on currencies, it was during the early stages of the great financial crash in 2008. What unfolded over the next couple of years was dramatic and devastating in many ways, but it was also an education for anyone who happened to be trading. As the news darkened and we did not know which bank or industry giant was next on the chopping block, it occurred to me how little an investor in a company really knows about a business, beyond quarterly snapshots. When you step up to the world of FX though, you are trading the big picture – economic data, breaking news, interest rates, government borrowing, international trade are all part of the action, and as such there is plenty of information available and analysis you can do as an individual trader.
Ultimately we all have to decide for ourselves what the right trade to make is, and everyone will have their own unique analysis. But the concepts at play in the FX markets are often the same you read about in the news each day, and the comprehensive analysis and data available at DailyFX can help to connect the dots between these concepts and the price movements we see every day.
If there is a volatile period in the stock market, there are alternative markets like FX that are not strongly correlated to share prices. Because you are trading the different economies of the world against each other, you could go long a relatively higher-performing currency against a lower one, even while the global economy is falling down. As an entirely separate asset class, there are diversification benefits to FX.
I believe that participation in financial markets should be open to as many people as possible, that it’s not the exclusive right of big business, so the widest range of potential investors and traders can take part. IG exists to empower the entrepreneurial and adventurous to access the FX world through our award-winning platform.
Retail FX brokers like IG Group have been at the forefront of customer innovation for many years, and most new clients can open an IG account in under 5 minutes with our automated application technology, making the step from thinking about taking a position on the FX market, to trading it, as straightforward as possible. If you’re just exploring FX for the first time, then welcome to a new part of your financial world! IG offers no-obligation demo accounts to practice with virtual money and start to build up your trading knowledge in your own time. I hope you take advantage and start to learn more about the oldest asset class in the world.
—Written by Rupert Osborne, CEO of IG US