From Graham Graham to Satoshi Nakamoto, the Bitcoin Value Investor’s Guide

Written by Brian Cubellis Compiled by: Block unicorn

### The origin of value investing

1. In the late 1920s, the concept of value investing came into being.
2. This intellectual movement was founded by Benjamin Graham and David Dodd at Columbia Business School (CBS).
3. This concept was a reaction to the financial mania that sparked the 1929 Wall Street Crash and the Great Depression.
4. The prosperous 1920s saw a surge in post-war optimism, rapid industrial growth and stock market participation.
5. However, the lack of regulation and standardized financial statements prevents investors from implementing disciplined investment strategies.
6. Insider trading is legal and deceptive accounting practices are uncontrolled, leading to serious overvaluation of the market.
7. As the father of value investing, Graham created an investment framework based on fundamental analysis.
8. Value investing believes that market prices may deviate from the intrinsic value of assets.
9. Graham compared the market to an emotional "Mr. Market" whose quotes will fluctuate with emotions.
10. "Mr. Market's job is to provide you with prices; your job is to decide whether it's good for you to take action." - Benjamin Graham, "The Intelligent Investor" (1949)

    

    Evolving Framework

Simply put, value investing is buying something for less than its actual value. This basic concept has been a core tenet of the professional investing community for nearly a century, since Benjamin Graham's original thinking. His teachings inspired the likes of Warren Buffett, who was a student of Graham's at Columbia Business School in the early 1950s and went on to create one of the greatest achievements in the history of investment management. Over time, however, elements of the value investing framework have evolved and adapted to the changing financial landscape. Buffett's value investing approach, for example, prioritizes more qualitative factors—rather than just the purely quantitative metrics Graham relied on—such as barriers to competition, barriers to entry, and management excellence.

All of these principles are rooted in long-term fundamentals and are most commonly applied in the traditional stock world. However, it is worth considering how these principles apply to newer asset classes. Although Bitcoin is not a traditional security, it is a compelling case study that can be analyzed within this framework. By understanding the fundamental underpinnings of the asset and the likely trajectory of the network, there is a strong case to be made that Bitcoin represents a severely undervalued investment opportunity, and that its investment thesis may be understood through the lens of value investing.

Application of the value investing framework to the Bitcoin investment thesis

We believe that long-term holding of Bitcoin represents a modern and reasonable interpretation of value investing. While it may be counterintuitive to some, many of the basic elements of value investing can be directly applied to the investment case for Bitcoin. Let’s explore how the concept of value investing deeply fits into the argument for Bitcoin:

(1) Long-term investment perspective: Value investing requires investors to be able to ignore volatility and be willing to wait for the market to recognize the true value of the asset. The best investments are those that can be held indefinitely. Within a value investing framework, Bitcoin's historically huge volatility should not be viewed as a risk, but as an opportunity that can be seized by maintaining a long-term investment perspective and blocking out short-term noise.

"The stock market is designed to move money from the active to the patient."..."Uncertainty is actually the friend of the long-term value buyer." - Warren Buffett

(2) Contrarian thinking: following the crowd and chasing performance run counter to the concept of value investing. Instead, investment decisions should be made from first principles by identifying information asymmetries. The general misunderstanding and lack of understanding about Bitcoin (and our existing monetary system) has kept it in a contrarian position.

"It's always easiest to follow the crowd; and sometimes, it takes a lot of courage and conviction to stand out. However, staying away from the crowd is an essential component of long-term investing success." - Seth Klarman

(3) The power of compound interest returns: The concept of compound interest in value investing is similar to a snowball rolling down a hill; with time and patience, small gains can accumulate and multiply the value of the investment. Importantly, this mathematical concept can also be applied to the hidden devaluation of currencies – recognizing the slow and hidden ways in which inflation erodes purchasing power is key to understanding Bitcoin’s value proposition.

"It's clear that changes of just a few percentage points can have a huge impact on the success of a compounding (investment) plan. It's also clear that this impact grows larger over time." - Waugh Lon Buffett

(4) Comfort level with concentrated investing: A less traditional idea in value investing is that investors should embrace concentrated investing, rather than agreeing with the common view that portfolio diversification is crucial. When investors truly understand an asset's intrinsic value, they should size their investments based on that belief, even if it results in a more concentrated portfolio. In the context of Bitcoin, a deeper understanding of the technology, its unique properties as a digital store of value, and its overall adoption trajectory could lead to extraordinary investments.

"Diversification is a protection against ignorance. It doesn't mean much if you know what you're doing." - Warren Buffett

(5) Excellent Management: The core principle of value investing is the company's management team excellence and integrity. Investors should pay close attention to leadership to ensure that the stewards of their capital are both capable and trustworthy. When comparing this view to Bitcoin, an interesting similarity emerges. Bitcoin is built not on a tangible executive team but on carefully written code and an immutable monetary policy. Trust is not built on fallible human beings, but on the absolute mathematics that govern the protocol. Therefore, the appeal of Bitcoin in the field of "excellence in management" is that it provides investors with a transparent and predictable financial instrument without human intervention.

"Modern life creates successful bureaucracy, and successful bureaucracy breeds failure and stupidity." - Charlie Munger

(6) Barriers to competition and barriers to entry: Value investing attaches great importance to competitive advantage and ensures The company maintains its edge and defends its position in the market. Bitcoin’s origins are often referred to as a “flawless concept,” representing a profound first-mover advantage in creating digital scarcity. Bitcoin’s growing network effects, combined with its unparalleled degree of decentralization, support its dominant market position. As a result, any new entrant trying to replicate or introduce similar digital scarcity will face insurmountable obstacles, reinforcing Bitcoin’s inherent value proposition.

“The key to investing is not to assess how much impact an industry will have on society, or how much it will grow, but to determine any company’s competitive advantage and, most importantly, the durability of that advantage.”—— Warren Buffett

Value Investing Isn’t Dead Yet

Just as mainstream media has often declared “Bitcoin is dead” throughout its history, “value investing is dead” has been declared countless times over the past few decades. In fact, the mantra of “growth at all costs” has dominated markets in the 21st century, and the continued shift from “active” to “passive” index investing has also played a large role in the perception that value investing is ineffective because Stock market performance is increasingly concentrated in a handful of mega-cap growth stocks. That being said, value investing will always fall out of favor to some extent due to the human tendency to pursue performance.

"Value investing has no appeal to the masses. If it did, you would never get a bargain." - Arnold Vandenberg

Additionally, over the past few decades, continued devaluation and artificialization through currency printing have The phenomenon of lowering the cost of capital is one reason why growth stocks are favored over value stocks. However, although "value" strategies have underperformed "growth" strategies in the stock market, the basic principles of value investing have timeless value. Value investing represents the ability to foresee future growth before an asset's financial condition becomes apparent or before the market realizes its true value potential.

"When the gap between reality and perception becomes large, opportunities arise." - François Rochon

Just like Bitcoin, value investing will never go away.

They may appear unpopular for a long time, but for those investors willing to put in the effort to deeply understand the full value potential of digitally native, energy-enabled, cryptographically secure, open source, fair distribution, scarce commodities There are asymmetric opportunities.

Benjamin Graham, Warren Buffett, and many of their disciples may not realize it yet, but they have provided a useful toolkit for understanding the investment case for Bitcoin.

The above is the detailed content of From Graham Graham to Satoshi Nakamoto, the Bitcoin Value Investor’s Guide. For more information, please follow other related articles on the PHP Chinese website!