- Warren Buffett’s Berkshire Hathaway has made surprise bets on Barrick Gold and Snowflake in recent months, clashing with the investor’s past warnings about gold, tech stocks, and IPOs.
- Berkshire’s bosses may be pursuing smaller, more frequent investments and cashing in on corporate actions, Brian Gongol, a longtime Berkshire shareholder, told Business Insider.
- “I wouldn’t be surprised if Buffett, Weschler, Combs, and Ajit Jain all got on the phone and had a talk where they decided to ‘think small’ with some fraction of the company’s cash pile,” Gongol said.
- Buffett and his team also signaled Berkshire was “the best big investment they could find” when they spent $5.1 billion buying back stock in May and June, Gongol said.
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Warren Buffett’s Berkshire Hathaway stunned investors when it revealed a $560 million stake in Barrick Gold in August, and shocked them again with its $735 million bet on Snowflake when it went public in September.
After all, the billionaire investor has blasted gold as an inferior asset and repeatedly warned against backing aggressively valued, lossmaking technology companies, and IPOs.
Yet Barrick and Snowflake aren’t necessarily betrayals of Buffett’s principles, according to Brian Gongol, a longtime Berkshire shareholder and close follower of the company.
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“At first glance, the Snowflake investment really does look out of character — even for Weschler and Combs,” Gongol told Business Insider, referring to Buffett’s two portfolio managers, Ted Weschler and Todd Combs.
However, he pointed to Buffett’s description of “work-outs” — investing opportunities driven by corporate actions such as mergers, spinoffs, and reorganizations — in his 1962 letter to investors in his partnership.
“An IPO is about the closest we might see to a classic work-out,” Gongol said.
In other words, Buffett’s team may have spotted a chance to profit by locking in a price of $120 for Snowflake stock before its public debut. Indeed, Snowflake shares more than doubled in value on their first day of trading and still command a price above $240 each.
Berkshire’s bosses could also be making a concerted effort to spend the cash flowing into the company’s coffers each month by making smaller, more frequent investments.
“I wouldn’t be surprised if Buffett, Weschler, Combs, and Ajit Jain all got on the phone and had a talk where they decided to ‘think small’ with some fraction of the company’s cash pile,” Gongol said.
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If Berkshire has been scouting for work-outs and placing smaller wagers, its bet on Snowflake “wouldn’t be inconsistent even with the Buffett of almost 60 years ago, even if they haven’t done an IPO in forever,” he added.
Going for gold
The shift in strategy doesn’t rule out a major acquisition in the coming months.
“I’m positive that Buffett still wants to use his ‘elephant gun’ again soon, but it’s already chambered with $120 billion,” Gongol said, referring to Berkshire’s record $147 billion in cash and short-term investments at the end of June, minus Buffett’s $20 billion rainy-day fund.
As for Barrick, Buffett’s team may have simply determined the company was undervalued. Gongol pegged its intrinsic value at about $20 a share, below its stock price in early April.
“Gold is still a pretty preposterous substitute for a real, productive investment,” he said. Berkshire may have invested because it looked cheap and it “just happened to be a mining company.”
Snowflake and Barrick may be grabbing investors’ attention, but Berkshire’s $5.1 billion of stock repurchases in May and June shouldn’t be overlooked, Gongol argued. Buybacks might be considered “dullsville” by some, but the entire Hyatt hotel chain is valued below $6 billion, he pointed out.
“Buffett and his company are saying their company is the best big investment they could find,” he said. “That’s saying something.”