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

To say that Warren Buffett is not a fan of cryptocurrencies would be an understatement. The ‘Oracle of Omaha’ has been a frequent critic of Bitcoin over the years. Charlie Munger, the lieutenant Berkshire Hathawayhas advanced further.

Munger describes it as “investment in nothing“and asking the US to follow China in banning cryptocurrencies altogether. I don’t know if I’ll go that far. But I agree with Warren Buffett, whose main beef with crypto is that it doesn’t produce anything tangible.

Therefore, it is not possible to make money while sleeping through dividend payments. If I wanted to, then I would look at some of Warren Buffett’s time-tested investment principles.

Time on the market

There’s an old investment adage “time the market, not time the market“. That is, the most important thing is how long I stay invested (time at market), rather than worrying about the timing of market entry.

Warren Buffett strongly agrees with this approach. He has said: “We [Buffett and Munger] have no idea what the stock market will do when it opens on Monday – we never havee...Or, for that matter, what the economy will do.

This point about economics is important, because it can be very influential in showing prices when the market opens on Monday. But long-term, macroeconomic issues are largely irrelevant to stock market returns.

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

That’s more than 10 times the amount of sleep I’ve had over the past 78 years!

Grow your income

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

Warren Buffett

If I’m going to make passive income while I sleep, then I need to find a quality company that pays dividends. This is where Warren Buffett specializes.

Berkshire Hathaway bought most of its Coca Cola stock in 1988 and 1989, after the stock market crash of 1987. That holding is up about 1,800% since then. And in 2022, Berkshire will receive $704m in dividend income from the stock.

That without lifting a finger. It’s just money that goes into Berkshire’s coffers, to invest elsewhere.

Finding a quality company

While I’m certainly not saying buy Coca-Cola, I think it’s giving you a clue of what to look for in a business that pays dividends.

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

Of course, there is no guarantee that dividends will be paid. But there are certainly plenty of stocks that have a good payout record. As an investor, my job is to find the right one. Once I have it, then I can make money in my sleep, just like Warren Buffett.