Forget crypto! I’d follow Warren Buffett and make money in my sleep

Buffett at the BRK AGM
Image source: The Motley Fool

To say that Warren Buffett isn’t a fan of cryptocurrencies would be an understatement. The ‘Oracle of Omaha’ has been a frequent critic of Bitcoin over the years. Charlie Munger, his lieutenant at Berkshire Hathaway, has gone even further.

Munger has described it as an “investment in nothing” and called for the US to follow China in banning cryptocurrencies altogether. I don’t know if I’d go that far. But I do agree with Warren Buffett, whose main beef with crypto is that it doesn’t produce anything tangible.

Therefore, it can’t make me money in my sleep through dividend payments. If I want that, then I’d look to some of the tried-and-tested investing principles of Warren Buffett.

Time in the market

There’s the old investing adage of “time in the market, not timing the market“. That is, what matters most is how long I stay invested (time in the market), rather than worrying about timing my market entry points.

Warren Buffett agrees wholeheartedly with this approach. He has said: “We [Buffett and Munger] haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have...Or, for that matter, what the economy is going to do.”

This point about the economy is important, because it can be very influential to share prices when markets open on any given Monday. But long term, macroeconomic issues are largely irrelevant to stock market returns.

Since World War II, the S&P 500 has entered a bear market 13 times. There have been 12 US recessions during the same period. Yet if I’d invested $100 in the S&P 500 at the beginning of 1945, I’d have about $350,434 at the end of 2022, assuming I reinvested all dividends.

That’s a gain of more than 10 times the amount of nightly sleeps I’d have had over those 78 years!

Growing income

If you don’t find a way to make money while you sleep, you will work until you die.

Warren Buffett

If I’m going to make passive income in my sleep, then I’m going to have to find quality companies that pay me dividends. This is where Warren Buffett specialises.

Berkshire Hathaway bought most of its Coca-Cola shares in 1988 and 1989, soon after the 1987 stock market crash. That holding is up around 1,800% since then. And in 2022, Berkshire received $704m in dividend income from that one stock.

That’s without lifting a finger. It’s just money that rolls into Berkshire’s coffers, to be invested elsewhere.

Finding quality companies

While I’m certainly not saying go buy Coca-Cola, I think it does offer clues of what to look for in a dividend-paying business.

The company is a dividend king, having increased its annual payout for 60 consecutive years. It generated $7.3bn in free cash flow in the first nine months of 2022. Plus, Coca-Cola has acquired many other brands beyond its own in order to grow.

Of course, it’s not always guaranteed that dividends will be paid. But there are certainly plenty of stocks that have great track records of payouts. As an investor, my job is to find the right ones. Once I have, then it’s possible to make money in my sleep, just like Warren Buffett.

The post Forget crypto! I’d follow Warren Buffett and make money in my sleep appeared first on The Motley Fool UK.

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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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