Warren Buffett vs the Blockchain Network: A Deep Reflection of a Transition Mindset

How Warren Buffet managed money in the past. How money should be managed in the future.

His skill is investing, but his secret is time.- Morgan Housel in The Psychology of Money: Timeless lessons on wealth, greed, and happiness.

Warren Buffett’s net worth is $84.5 billion. Yet, $84.2 billion was accumulated after his 50th birthday.

Don’t forget the first phrase His skill is investing, but his secret is time because if Buffett were an ordinary investor when he was 30 years old and had a net worth of $9.3 million, like most investors, he could have been enjoying life, his family, his friends, like a regular guy.

Imagine Buffett would spend some money on a boat, admirable propriety, traveling around the world, and in his 30s, he would end up with $25,000. Yet, imagine he would still keep his extraordinary annual investment return of 22% but stopped investing and retired at age 60.

His estimated net worth would be $11.9 million. 99% less net worth than it is today.

More than 2,000 books were written about Warren Buffett’s incredible skills, yet nobody shared his most crucial skill: his secret is time.

Jim Simmons has compounded money at 66% annually since 1988. He was probably the best investor of all time. However, even compounding a third of that, Warren accumulated $84.5 billion against $21 billion from Simons. Why? Because Simons started when he was at age 50.

The magic of compounding interests is so powerful over time that the annual average return turns into a secondary factor. Read that again.

We were educated to think in a linear perspective, not an exponential one; that’s why we usually do easy math like 8+8+8+8+8 but struggle to do 8x8x8x8x8.

IBM created its first hard drive with 3.5 megabytes in the 1950s. In the 1970s, IBM held a 70 megabytes hard drive. In 1999, Apple came with a 6-gigabyte hard drive. In 2006, Apple reached 250 gigs on the new iMac. In 2019, we saw personal computers with 100 terabyte hard drives.

From 1950 to 1990, hard drive capacity increased by 296 megabytes. From 1990 through the present day, we gained 100 million megabytes.

Now you can understand the power of compounding interests and why Warren Buffett won the race against every single investor in the world. From his 17 years old to his 91, he just had to wait for the exponential curve to take effect.

That makes us think that our effort to beat the market or trying to find in the endless books written (I bought three of them) about Buffett’s techniques is a waste of time.

If you put a portion of your money from an early age into the S&P500 index with a 10% annual return since its inception in 1926, and you use the time to your advantage, you don’t need to be a mathematic genius to be fine at 65.

We should take some time to think about what’s enough for us. This word is compelling in the investment world because it all comes down to the magic number you want to achieve. Is it $1 million? $2.5 million? $10 million? $1 billion?

Enough is realizing that the opposite- an insatiable appetite for more- will push you to the point of regret.- Morgan Housel in The Psychology of Money: Timeless lessons on wealth, greed, and happiness.

I’m not a macroeconomics person.

No single piece of macroeconomic advice given by the expert to their government has ever had the results predicted.- Peter Drucker.

Since the 1970s, long-run growth rates have quickly declined and leveled off at around 3 percent per year for the following three decades. Then, growth contracted again sharply and has been declining ever since.

Another critical factor that we must know is that the robotization of the entire economy is taking place. That means that robots will take most of our jobs.

Don’t worry, the world is not going to end, not that I know.

The analog world will be dismantled into a new world, with disruptive industries rising. And for that to happen, we’ll need millions of workers to reshape the new economy. Robots will not be able to do all the work, but they will help us have a better life.

The global economy is changing and is changing fast. The pandemic just boosted the shift. Most workers do their job at home now, in a more efficient way.

Self-driving cars are being tested, artificial intelligence is working in thousands of devices that help us in our daily routines.

The digitization of the entire economy is taking place.

And one of the last industries that were held to the analogic world was the financial system. But not anymore.

Central banks are incrementing their power over money. As a result, central bank digital currency, or the so-called CBDCs, will do most commercial banks’ work, but more efficiently.

Money will be totally digitized into wallets that will guide your financial routines in an ultra-efficient machine, highly centralized and regulated.

For the ordinary individual, it will be better, cheaper, and user-friendly. In addition, technology will help people to manage their financial behavior.

However, the global economy will have to deal with one big problem- debt.

Most experts believe that a Great Reset has to be done because with the technological deflationary pressure, inflation will be impossible to manage, and central banks will need to print exponential amounts of money to pay the previous debts in a vicious cycle.

Important international agreements will have to be made, with the power of different currencies be negotiated at the G7 table to create a new basket to currencies with different weights.

The million-dollar question is: what will happen during the transition?

The struggle between centralization and decentralization is at the core of American history.

After the 2008 Great Recession, an anonymous individual or group of individuals created a 9-page white paper that quickly spread all over the internet.

Satoshi Nakamoto is the name millions of people talk about. In this 9-page white paper was mentioned:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.

12 years later, the Lightning Network allows an individual to exchange their country’s currency for dollars through a simple mobile phone, almost free, at the speed of light, without a trusted third party.

I guess technology and decentralization won.

The question about the Bitcoin network and all the industry of decentralized finance (DeFi) and the endless blockchains already created is if it’s going to have enough power to spread worldwide and be part of the daily routine of most human beings?

It’s a genuine question because central banks and Western governments don’t want to lose their geopolitical power. But, on the other hand, companies and countries have already adopter the Bitcoin network. Companies like Tesla and Microstrategy, American states like Wyoming and Texas, countries like El Salvador and Tanzania are at the beginning of this massive adoption.

The centralized world wants the magic tool to print money to keep the power of manipulating currencies and “free” markets.

The decentralized world wants the market to work free of manipulations, the price discovery to get track again, and the individual to be free to decide which currency is best for its own interest- therefore, to really democratize the finance worldwide.

Seeing the massive adoption of the Bitcoin network worldwide and seeing western countries starting to realize some usage of the Bitcoin network, can we find a new macroeconomic ecosystem that brings the best of both worlds?

Final Thoughts

I just bought $2,000 of Bitcoin, but also $2,500 of Apple stocks.

Will Apple stocks be collateralized by the Bitcoin network in the future? Will Bitcoin replace gold as a new reserve currency? How can a Great Reset happen without the entire collapse of the markets?

If I was in 1950, it would be easier because the world wasn’t being threatened by a gigantic snowball of debt and a new decentralized financial technology.

The best thing for me is to be on both sides of the bridge.

I’m not an absolutist about Bitcoin. But I am a severe critic of the current financial system. I know it’s the best system we can have, but we need to be better.

The market has not been free for a long time, and no one with good judgment is interested in having a Marxist regime in place again, are we?

His skill is investing, but his secret is time.

As I have nowhere else to go, and a portion of my money is in the stock market, another in real estate, and another in Bitcoin, I guess all I have to do is keep investing and hope that luck and time can do their magic thing of compounding my assets.

I don’t live in Omaha, and I’m not 17 years old, but I have two beautiful daughters and a legacy to defend.

But on the other hand, I feel privileged to be passing through this generation with so many challenges ahead related to climate change, the robotization of the economy, the disruption of money, and all the micro-phenomena that are happening in our everyday.

Having the privilege of writing and sharing ideas in this challenging time is a source of pride for me.

Having readers and writers who challenge me every day to think and reflect deeply makes me a more complete person.

Time, this powerful entity, will dictate what the future holds.

I already know that I have to have patience and an exponential look at the world because it seems that we will start a new era at the speed of light.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.

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