Warren Buffett Was Wrong About ‘Rat Poison’ Bitcoin Portfolio, Data Shows

by James · April 21, 2023

Legendary investor Warren Buffett sees no value in Bitcoin (BTC), infamously calling it “rat poison squared.” But data shows that adding Bitcoin to a so-called “Rat Poison Portfolio,” an equally weighted portfolio of Berkshire Hathaway, Microsoft, JPMorgan and BlackRock stocks, would have yielded much better returns for The Oracle of Omaha.

“Rat poison portfolio” with Bitcoin does better

Since 2014, allocating just 2.5% of Bitcoin annually to the “Rat Poison Portfolio” has increased returns by nearly 20% with reduced risk, according to independent market analyst Alpha Zeta. Currently, the portfolio’s return is around 16%.

Rat Poison Portfolio with Bitcoin Allocations. Source: Alpha Zeta

Despite Bitcoin’s notorious price volatility, Alpha Zeta noted that BTC’s correlation with the stocks of Berkshire Hathaway, Microsoft, JP Morgan and BlackRock is very low.

Correlation between Bitcoin and Berkshire Hathaway, Microsoft, JP Morgan and BlackRock stocks since 2014. Source: Alpha Zeta

For example, during the 2021-2023 bear market, allocating Bitcoin to the rat poison portfolio could have offset losses by around 10%.

Rat poison portfolio drawdown including Bitcoin’s 2.5% allocation. Source: Alpha Zeta

In other words, BTC usually negates losses incurred by the downside movements of the aforementioned stocks. Therefore, allocating a small portion of Bitcoin to the rat poison portfolio has proven to be a reasonable hedging strategy to offset potential negative returns.

Bitcoin outperformed Berkshire Hathaway by 320,000%

Bitcoin’s proponents have billed it as an alternative to traditional safe-haven assets like gold, given the scarcity that comes with its fixed 21 million BTC supply and increasing deflation over time.

This has attracted many people to buy Bitcoin as a way to offset fiat deterioration and excessive money printing by central banks around the world. For example, the number of non-zero Bitcoin addresses has grown from around 2,500 in 2009 to over 45 million in 2023, per Glassnode.

Number of non-zero Bitcoin addresses since 2009. Source: Glassnode

Nonetheless, Buffett believes that Bitcoin recently said that Bitcoin is a gambling token, noting that “it has no intrinsic value […]but that doesn’t stop people from wanting to play the roulette wheel.”

However, the veteran investor continues to have exposure to the broader crypto market through his popular investments, such as Nubank, which offers 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 is down almost 60% from a record high of $69,000 in November 2021, but is up 100% so far this year.

Since its market debut on January 9, 2019, Bitcoin has outperformed Berkshire Hathaway’s portfolio by over 320,000%.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.