Traditional goodwill also gets amortized down over time but crypto does not, which is interesting.
I think the difference vs. stocks and bonds are that traditional securities confer a legal right to the owner for something (repayment of debt, equity in the company, associated dividends). Is there any “contract” behind crypto? Or do you just transfer the money to an account and some e-wallet then holds X “bitcoins” which are totally notional in value? I think that if cryptocurrencies were technically securities then you would treat them like stocks or bonds. But they’re in no man’s land - they’re neither a traditional currency that would be held based on standard FX rates, but they are not a contract with a counterparty either.
I agree that crypto doesn’t meet the definition of a financial asset, but I don’t think the unique mark-to-market accounting for financial assets is because they’re financial assets per se, but rather because they have readily observable market prices. Maybe a better analogy for crypto would be holdings of gold or other commodities. I (embarrassingly) do not know how those are accounted for, but will probably get drunk and look it up this weekend.
I’m also curious now if entering a forward/futures/option agreement with respect to bitcoin price would represent a financial asset, and therefore be marked to market. If so, would be much more appealing for a company to invest in bitcoin that way rather than directly.
I think I bought my first Berkshire shares some time in the 1997-1999 area (B shares obviously). But I distinctly remember buying shares in early 2000 because IIRC it was the first time that Buffett made a statement about how the shares were obviously undervalued. Unfortunately, I was a poor PhD student at the time, so this was not a very substantial amount. But regardless of the size, it was obviously a fantastic time to invest in BRK.
More recently, I was excited to be super overweight in Berkshire when they were repurchasing a substantial of shares:
I don’t see how holding something like ccl could be anything other than holding for retirement - or for less than 5 years. They’re really not wrestling with a fear of insolvency due to covid. But they could tank for other reasons in the short term, I guess.
Just to be clear, the hope here is that CATV catches the attention of weed stock/wsb people and takes off? Not that the company actually becomes a successful weed … grower? distributor? … Feels like the weed stock wave/bubble came and went (as did my $$), so this doesn’t make a ton of sense to me, which probably means it is a good idea.
I did not in fact get drunk and look up the accounting for commodity prices this weekend, but I did remember that Berkshire Hathaway purchased a bunch of silver in the late 1990s. And, consistent with @mosdef’s expectations, that investment was marked to market. Moreover, I didn’t recall that Berkshire also purchased oil at the same time:
We had three non-traditional positions at yearend. The first was derivative contracts for 14.0 million barrels of oil, that being what was then left of a 45.7 million barrel position we established in 1994-95. Contracts for 31.7 million barrels were settled in 1995-97, and these supplied us with a pre-tax gain of about $61.9 million. Our remaining contracts expire during 1998 and 1999. In these, we had an unrealized gain of $11.6 million at yearend. Accounting rules require that commodity positions be carried at market value. Therefore, both our annual and quarterly financial statements reflect any unrealized gain or loss in these contracts. When we established our contracts, oil for future delivery seemed modestly underpriced. Today, though, we have no opinion as to its attractiveness.
Our second non-traditional commitment is in silver. Last year, we purchased 111.2 million ounces. Marked to market, that position produced a pre-tax gain of $97.4 million for us in 1997.
(6) Commitment to purchase silver
During 1997, the Company entered into several forward contracts to purchase silver during the first quarter of 1998. As of December 31, 1997, the Company had committed to purchase 111.2 million ounces of silver which had an estimated fair value of about $665 million. Subsequent to year end, the Company committed to purchase an additional 18.5 million ounces of silver. The Consolidated Statement of Earnings for 1997 includes a pre-tax gain of $97.4 million representing the excess of fair value over net cost of the commitments.
Looking at this disclosure, it raises the question of whether there’s any importance in the fact that these investments reflect financial contracts on physical goods, rather than ownership of the physical goods themselves. Like, if a company were to own shares in an ETF that itself owned bitcoin, or if it entered into a forward contract based on bitcoin price, surely that would be marked to market?
There really is something unprecedented and amazing and almost magical about Elon Musk’s continuing ability and inclination to move the prices of Bitcoin and Dogecoin with his slightest whim. Imagine if you had gone to Warren Buffett 30 years ago — or J.P. Morgan 120 years ago — and told him: Here is a lamp. In the lamp is a genie. When you rub the lamp, the genie will come out and invent two assets. They will trade like stocks in many ways, but unlike stocks they (1) will not be subject to U.S. securities laws, (2) will trade 24 hours a day, seven days a week, and (3) will not represent claims on any businesses or cash flows. One will have a market cap — a total circulating supply — of about a trillion dollars; the other will be smaller but still like $65 billion. They will be liquid enough , with lots of people trading many billions of dollars’ worth per day; you can buy or sell lots of them without too much price impact. And: Any time you want the price of either one to go up or down by 10% or more, you can just whisper “price go up” or “price go down” into the lamp, and it will happen instantly. You are the only person who can do this, and you can do it as often as you want.
This wasn’t as bad before public disclosure of exec comp. As soon as CEOs could see everyone else’s pensions they used that data to drive pensions up (WHY DOES JIMMY AT XYZ GET MORE PENSION THAN ME FIX IT). This happened with all the pieces of compensation.
