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Renowned investor Warren Buffett perceives no merit in Bitcoin (BTC), famously labeling it as "rat poison squared." However, data indicates that incorporating Bitcoin into a so-called "Rat Poison Portfolio," which consists of an equally weighted mix of Berkshire Hathaway, Microsoft, JPMorgan, and BlackRock stocks, would have yielded significantly improved returns for The Oracle of Omaha.
"Rat poison portfolio" with Bitcoin performs better
Since 2014, dedicating just 2.5% of Bitcoin annually to the "Rat Poison Portfolio" enhances returns by nearly 20% while lowering risks, according to independent market analyst Alpha Zeta. Currently, the portfolio’s returns are approximately 16%.
Rat poison portfolio with Bitcoin allocations. Source: Alpha Zeta
Despite Bitcoin’s infamous price fluctuations, Alpha Zeta observed that BTC’s correlation with the stocks of Berkshire Hathaway, Microsoft, JP Morgan, and BlackRock is quite minimal.
Correlation between Bitcoin and Berkshire Hathaway, Microsoft, JP Morgan, and BlackRock stocks since 2014. Source: Alpha Zeta
For example, during the bear market from 2021 to 2023, including Bitcoin in the Rat Poison Portfolio could have mitigated losses by about 10%.
Rat Poison Portfolio drawdown including Bitcoin’s 2.5% allocation. Source: Alpha Zeta
In essence, BTC generally offsets losses caused by declines in the aforementioned stocks. Thus, incorporating a small fraction of Bitcoin into the Rat Poison Portfolio has demonstrated to be a sensible hedging approach to counteract potential negative returns.
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Bitcoin surpassed Berkshire Hathaway by 320,000%
Advocates of Bitcoin have positioned it as a substitute for conventional safe-haven assets like gold, due to the scarcity associated with its capped supply of 21 million BTC and the gradual deflation over time.
This has led many individuals to purchase Bitcoin as a means of counteracting fiat currency devaluation and the rampant money printing by central banks globally. For instance, the number of non-zero Bitcoin addresses has surged from approximately 2,500 in 2009 to over 45 million in 2023, according to Glassnode.
The number of non-zero Bitcoin addresses since 2009. Source: Glassnode
Nonetheless, Buffett has recently referred to Bitcoin as a gambling token, asserting that "it doesn't have any intrinsic value […], but that doesn't stop people from wanting to play the roulette wheel."
However, the seasoned investor maintains exposure to the broader crypto market through his well-known investments, such as Nubank, which provides crypto-related services in Latin America.
Related: Financial analyst agrees Bitcoin could be 'rat poison,' but not in the way you think
As of April 2023, Bitcoin has declined nearly 60% from its peak of $69,000 in November 2021, yet has increased by 100% thus far this year.
Since its market introduction on January 9, 2019, Bitcoin has outperformed Berkshire Hathaway’s portfolio by over 320,000%.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should perform their own research before making any decisions.
