Warren Buffett may be famous for his dependable investing philosophy, but like many things in 2020 the regular playbook doesn’t seem to apply.
Less than a month ago, Berkshire Hathaway surprised Wall Street b buying Barrick Gold. In 2000, Buffett had scoffed at investments where you “take some piece of metal that people dig out of the ground in South Africa and then put back in the ground at Fort Knox” and in 2012 vice chairman Charlie Munger said Berkshire has “never had the slightest interest in owning gold”.
Now the company is using some of its huge cash pile to delve into an unprofitable tech IPO. It’s unclear who made the call on the investment and Buffett has plenty of people of he calls upon for ideas (Todd Combs Ted Weschler were the driving forces between Berkshire buys of Apple and Amazon). But it’s still out of the ordinary.
Cloud computing high flyer Snowflake (SNOW) said in a filing last night that Berkshire Hathaway (BRK.B, +1.6%) will buy $250M in class A shares in a private placement at a price equal to the IPO price.
“Berkshire Hathaway Inc. has agreed to purchase 4,042,043 shares of our Class A common stock from one of our stockholders in a secondary transaction at a price per share equal to the initial public offering price that will close immediately subsequent to the closing of this offering,” Snowflake said.
Snowflake reported revenue of $242M H1 2020, up about 133% from the year-ago period, with net loss of $171M.
The company came in at No. 40 on the CNBC Disruptor 50 list of 2020.
Buffett, who turned 90 in August, looks to be the classic example of an investor who believes IPO stands for “It’s Probably Overpriced.” Investment banks “don’t even call” Berkshire Hathaway about new issues, Munger said on CNBC last May.
But it’s not unprecedented.
Berkshire invested in Brazilian fintech StoneCo as it went public in October 2018. Jack Ma’s Ant Financial, which is expected to go public soon and could raise a record $30B, also invested in StoneCo.
One of Buffett’s most famous investments was also a relative new issue. GEICO went public in 1949 when Benjamin Graham’s Graham-Newman Partners divested part of its stake. Shortly after, Buffett bought GEICO shares while he was getting his Master’s at Columbia under Graham. The “stock actually traded as a low as $1 in 1949, and appreciated up to $95 in 1955, a 95-bagger for those fortunate souls who bought the stock six years earlier,” according to John Huber of Saber Capital Management.
The Snowflake investment is pretty small ($750M) compared to the $150B cash pile Berkshire had amassed by the end of June. But it could be a signal that it’s looking into investments that can lure the younger investing crowd.
“One thing that was clear at Berkshire’s last in-person shareholder meeting, in 2019, was that it needs to do a better job courting the next generation of investors, who may have less fascination with Buffett than with tech pioneers like Elon Musk and Jeff Bezos,” Take Kim and Tara Lachapelle write on Bloomberg Opinion. “And considering Tesla and Amazon’s five-year return is more than 500%, compared with Berkshire’s 63%, they’d be justified. But look out tech kings: new decade, new Buffett — and one, it appears, who is willing to let Berkshire go in new directions.”