Berkshire Hathaway and Warren Buffett in particular, were criticized in 2020 for not being active enough and buying the stock market dip. Many investors did buy and caught good prices on the way down.
The big question on everyone’s lips was – why did Buffett do nothing when his company, Berkshire Hathaway, sits on a pile of cash? What does Buffett know, and we do not? Moreover, if Buffett chose to sit on the sidelines, wouldn’t it be smart for us to do the same?
As it turned out, Buffett did act. But a company at the size of Berkshire needs time to make an acquisition. Or that is precisely what Buffett did not have back in March.
Berkshire Entering the Cloud Computing Industry
Since the stock market’s volatility was so high, the drop and the bounce in March and April happened so fast that investors like Buffet had no chance to deploy their capital. But it does not mean that Buffett did not move.
It recently announced that it acquired a half a billion stake in a gold miner – Barrick Gold. Second, it revealed that it owns five percent stakes in the largest trading houses in Japan, with the intention to raise its participation close to 10% in each.
Last but not least, it announced these days that it is acquiring a quarter of a billion dollars stake in Snowflake – a cloud computing company. This is an industry that grows at astonishing CAGR rates, and Berkshire wants to be part of it.
What is interesting is the way it bought its stake – via a private placement, paying the IPO price. Moreover, another interesting fact is that Snowflake is actually losing money currently, operating at a net loss of $171 million.
However, it is not the first time when Buffett bets on a company that has a hard time making a profit at the time of the investment. If anything, it is a sign of trust in the business and shows the industry’s potential moving forward.
This marks the third move in 2020 that Berkshire makes – gold, international assets, cloud computing. But neither of these investments are big enough and are far from what the company used to do in the past.
Is this just Berkshire’s way of diversifying its portfolio? Or are we still to see some other investments this year?