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How Pandemic Forced a Radical Rethink at Warren Buffett’s Berkshire

Last Updated September 23, 2020 2:31 PM
Mark Emem
Last Updated September 23, 2020 2:31 PM
  • Berkshire Hathaway has made once-unthinkable investments in recent months.
  • The investing conglomerate seems to be challenging long-held investing principles fashioned by Warren Buffett.
  • Before the pandemic, Berkshire Hathaway’s underperformance was blamed on stubbornly shunning growth investing.

Part of what has made Warren Buffett successful is his consistency. By sticking to time-tested investing principles, Berkshire Hathaway, under the Oracle of Omaha, has gained over 2,700,000%  since 1965.

But as the coronavirus pandemic continues changing the world, Buffett has adjusted his thinking too. Now he is venturing into once-unthinkable areas and seemingly going against what he once preached.

Here is how the 90-year-old Warren Buffett has changed in the last few months.

1. Warren Buffett Invests in a Loss-Making Tech Startup

Warren Buffett famously urged people to only invest in businesses they thoroughly understand. One of Buffett’s most famous quotes  is “never invest in a business you cannot understand.”

Warren Buffett
Except for Apple and Amazon, Warren Buffett’s value-investing strategy has restricted him to the “old economy.” | Source: @Vintage_Value/Twitter 

Instead, Buffett advocates for investing within “your circle of competence.” This is the reason he has so famously stayed away from growth stocks, except for a few tech companies, a fact that earned him ridicule for underperformance in 2019.

In 2004, for instance, the Oracle of Omaha was approached to participate in Google’s initial public offering. He passed on the opportunity since, at the time, he couldn’t comprehend how the internet search giant would maintain a profitable and durable competitive edge over its rivals. Google has since then appreciated by over 3,000% .

Over the years, Buffett has grown more open to tech stocks managing to invest in Apple and Amazon, which are profitable and possess enduring competitive advantages. But this month, he did the unexpected by investing in an unprofitable tech startup ahead of an initial public offering.

Berkshire Hathaway
Berkshire Hathaway is investing in a loss-making tech startup ahead of an IPO. | Source: @TechCrunch/Twitter 

Earlier this week, it was revealed that Berkshire Hathaway is buying a stake in cloud software firm Snowflake worth about $600 million . The tech startup has never recorded a profit, and its net loss in the first half of 2020  amounted to $171.3 million.

2. Shiny Metal Attracts Investing Conglomerate

Over the years, Buffett’s distaste for gold has been public knowledge. In a speech at Harvard University over two decades ago, the Oracle of Omaha stated that gold has “no utility.”

In a 2011 letter to Berkshire shareholders , Buffett criticized the yellow metal, saying it relies on the greater fool theory–where buyers are enticed by the belief that someone else will pay more for the asset at a later date.

Warren Buffett
The Oracle of Omaha has been unapologetic about the lack of an investing rationale in gold. | Source: Berkshire Hathaway website

The same year Buffett stated that gold is a “way of going along on fear” and that you can only make money if the fear rises in the future .

Buffett now seems to be betting that the fears of inflation will increase the demand for gold and its price.

Last month, Berkshire Hathaway invested $563 million  in Canadian yellow metal miner Barrick Gold. This translated to over 20.9 million shares, about 1.2% of the total outstanding shares of the gold miner.

Barrick Gold
The Oracle of Omaha is yet to see value in gold, but he does see value in a miner. | Source: @BreslerAlex/Twitter 

Technically, Buffett did not purchase gold. But it was close enough, and the move suggested that the Oracle now appreciates bullion as an inflation hedge.

3. Warren Buffett Turns to the Far East

Warren Buffett has often warned about betting against America . He has lived true to this with most of Berkshire’s operating businesses located in the U.S.

Recently, however, he bought 5% stakes in five Japanese trading houses  worth approximately $6.63 billion. The stakes could reach as much as 9.9%, thus nearly doubling the amount invested. The five trading firms are Itochu, Marubeni, Mitsubishi, Mitsui & Co., and Sumitomo.

Oracle of Omaha
Berkshire Hathaway now owns a significant stake in five of Japan’s largest trading houses. | Source: @BusinessPartnrs/Twitter 

Additionally, Buffett’s investing conglomerate issued Japanese yen bonds for the first time. This was viewed as a diversification outside his home country , and a move to cushion against dollar depreciation .

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.