Warren Buffett's Thoughts on Card Collecting

[Gorditadogg]

I just saw this and thought it was interesting. We have had many discussions on this board about whether a baseball card collection is an investment. Here is another opinion to consider.

Warren Buffett once said there are 'two kinds of items people buy' to grow wealth — but only one 'really is investing' (Vishesh Raisinghani Sun, Jul 21, 2024 Yahoo.com/Finance)

If you’re looking for the definition of investing, there’s no better source than the world’s most famous investor, Warren Buffett. In 2018, the Oracle of Omaha explained what he considers a real investment to Andy Serwer of Yahoo Finance. “There’s two kinds of items people buy and think they are investing,” he said. “One really is investing, and the other isn’t.”

According to Buffett, the two items are real investments and speculative assets, and the difference depends on where the returns are generated. Understanding this could save you from gambling your wealth away.

Assets such as businesses, rental homes and farmland generate income organically for the owner, making them real investments. These investments can be made on a private basis. “You don’t really care if the stock market is open,” Buffett told Serwer. “You look at the investment itself to deliver the return to you.”

In contrast, a speculative asset needs a market of buyers and sellers. For example, Bitcoin, art and vintage wine do not produce income organically, so the only way to derive a return is to sell it to someone else for more than you paid. “If you buy Bitcoin or some cryptocurrency, you don’t really have something that produces anything. You’re just hoping the next guy pays more,” Buffett said.

This could explain why Berkshire Hathaway has avoided speculative assets such as cryptocurrencies or precious metals. The key lesson for ordinary investors is that an investment-worthy asset should have robust earning potential.