Warren Wednesday 3/1
In the 1981 Berkshire Hathaway shareholder letter, Warren Buffett wrote:
“We neglected the Noah principle: predicting rain doesn’t count, building arks does.”
During crypto booms, influencers and content creators alike flock to their respective channels to discuss the next project that will go 10x or 100x.
When storms brew on the horizon, the talking heads change direction and spout predictions of impending crypto doom and gloom.
But as Buffett noted to his shareholders, predicting rain doesn’t necessarily make you smart or an intelligent investor. The key is to build a portfolio so robust that it can withstand even the most turbulent market storms.
Amid record inflation, rampant unemployment, and macroeconomic uncertainty, Buffett lamented the “sporadic and inadequate” activity in Berkshire Hathaway’s ability to make the right acquisitions in the early 1980s. He woefully admitted that his preaching was better than his performance.
He was far from getting wrecked however.
Having built a substantial ark during his previous 17 year investment career, Buffett was able to insulate Berkshire from these turbulent markets with an equity portfolio valued at nearly 2x the total cost basis ($350m vs. $640m) and a year-over-year increase in earnings of nearly 15%.
Investors in web3 should do the same and embrace the Noah Principle for themselves.
Look for unique projects that anticipate storms on the horizon, but more importantly offer roadmaps for successfully navigating through or around them.
How to Build Your Ark with the Noah Principle
Prioritize capital allocation to the lowest risk digital assets. Typically, in times of uncertainty and turbulence, liquidity is drained from the riskiest assets first. This includes altcoins and NFTs. Staking additional capital towards more “stable” cryptocurrencies and platforms (think top 10) is one way to prepare your vessel for turbulent waters.
Avoid leverage at all costs. The volatility associated with cryptocurrencies and NFTs is unprecedented. Adding positions with borrowed funds is like filling your ark full of gunpowder. Returns might be magnified on margin, but so are losses.
Build up cash reserves. As markets tread downward, savvy investors who have hoarded cash are able to take advantage of market discounts.
Consistently churn and check your measures of security. Don’t keep all your assets in the same wallet. Reset passwords and seed phrases often. Get cold storage, use a proxy address to sign transactions on your vault’s behalf. Use revoke cash.
Stay educated. Think of this as your mental ark – the longer you are in the market the more experience and perspective you have to consider what conditions lay on the horizon.
Bottom line: Never be in a position where a turbulent storm can sink your entire portfolio. Remember, investing is a marathon, not a sprint. Investors who prepare for uncertain times by owning positions in solid assets will prosper over the long term.
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We took over 1,000 pages of wisdom from the Oracle of Omaha and condensed it into a snackable, easy-to-read investment guide to help you on your journey to grow wealth in the web3 space!