INSIGHTS
MAY
16
COSTA’S CORNER
“You don't tug on superman's cape
You don't spit into the wind
You don't pull the mask off that old lone ranger
And you don't mess around with Jim”
Thank you Jim Croce. A valuable life lesson for us all.
Far be it for me to disparage one of the greatest investors of all time but I may just tug on Superman’s cape a little here. Berkshire Hathaway just revealed the size of its Amazon stake and while it’s sizable (over 900 million dollars) it’s a relatively small investment for Berkshire.
Over time Warren Buffet and the Berkshire team have made incredible strategic moves, buying GEICO for one, and some curious moves, buying a huge stake in Heinz Kraft for another but they have always seemed to hold true to their core tenant, buy foundational stocks and hold for the long term.
While a stake in Amazon may be considered a foundational play, I am not sure what long term growth they can expect.
I am basing this on the price and nothing else for I feel that Amazon is still in the midst of its overall strategy, to take over the World and dominate every phase of your life. Maybe that’s a bit harsh but they do account for 45% of all online sales and that space is growing and they also have a huge stake in cloud computing and ultimately, the Internet of Things.
Yet, it’s price growth may have reached a peak or is not far from its peak and therein lies my problem with Berkshire’s investment.
They have been, historically, solid value players. Rarely, if ever, paying a premium for a company they have an interest in. They were one of the true financial entities that, during the financial crisis, were scooping up shares of distressed premium names. Lending to financial institutions when their capital was drying up. Ultimately, making billions as they cashed out.
True value in that they can wait years to profit off of their investments. Or, take a leadership role in restructuring the companies they own, making them profit engines. Truly one of the greatest business models ever and you can never take away from the fact that Warren Buffet and Company are common sense folks and invest with that in mind while using mathematical models to make sure they receive the best value for their money.
Yet, I can’t wrap my arms around taking an almost billion dollar stake in a company that is trading roughly 5% off its all-time high. Even with that long-term approach in mind, what is the end game? To be diversified into tech? A play on the future of retail?
The critics of Buffet ( trust me, I am not one of them) say that his steady, old school approach has forced him to miss much of the tech boom and this is his way of saying; Hey, I’m rethinking my position and here you go!
Maybe.
Maybe he sees things in Amazon that others don’t. That its growth has not reached full acceleration. That it’s dominance in cloud computing will not be challenged. That it can contain delivery costs and keep those steady profits coming.
As with every other Berkshire investment, you will have to wait years to see if it panned out the way they thought it would. My concern for Superman is that he no longer values value and he may be upping his game in a space that has already attached a premium to greatness.
Have to stay the course.
50% Stocks
25% Fixed Income
25% Cash
You don't spit into the wind
You don't pull the mask off that old lone ranger
And you don't mess around with Jim”
Thank you Jim Croce. A valuable life lesson for us all.
Far be it for me to disparage one of the greatest investors of all time but I may just tug on Superman’s cape a little here. Berkshire Hathaway just revealed the size of its Amazon stake and while it’s sizable (over 900 million dollars) it’s a relatively small investment for Berkshire.
Over time Warren Buffet and the Berkshire team have made incredible strategic moves, buying GEICO for one, and some curious moves, buying a huge stake in Heinz Kraft for another but they have always seemed to hold true to their core tenant, buy foundational stocks and hold for the long term.
While a stake in Amazon may be considered a foundational play, I am not sure what long term growth they can expect.
I am basing this on the price and nothing else for I feel that Amazon is still in the midst of its overall strategy, to take over the World and dominate every phase of your life. Maybe that’s a bit harsh but they do account for 45% of all online sales and that space is growing and they also have a huge stake in cloud computing and ultimately, the Internet of Things.
Yet, it’s price growth may have reached a peak or is not far from its peak and therein lies my problem with Berkshire’s investment.
They have been, historically, solid value players. Rarely, if ever, paying a premium for a company they have an interest in. They were one of the true financial entities that, during the financial crisis, were scooping up shares of distressed premium names. Lending to financial institutions when their capital was drying up. Ultimately, making billions as they cashed out.
True value in that they can wait years to profit off of their investments. Or, take a leadership role in restructuring the companies they own, making them profit engines. Truly one of the greatest business models ever and you can never take away from the fact that Warren Buffet and Company are common sense folks and invest with that in mind while using mathematical models to make sure they receive the best value for their money.
Yet, I can’t wrap my arms around taking an almost billion dollar stake in a company that is trading roughly 5% off its all-time high. Even with that long-term approach in mind, what is the end game? To be diversified into tech? A play on the future of retail?
The critics of Buffet ( trust me, I am not one of them) say that his steady, old school approach has forced him to miss much of the tech boom and this is his way of saying; Hey, I’m rethinking my position and here you go!
Maybe.
Maybe he sees things in Amazon that others don’t. That its growth has not reached full acceleration. That it’s dominance in cloud computing will not be challenged. That it can contain delivery costs and keep those steady profits coming.
As with every other Berkshire investment, you will have to wait years to see if it panned out the way they thought it would. My concern for Superman is that he no longer values value and he may be upping his game in a space that has already attached a premium to greatness.
Have to stay the course.
50% Stocks
25% Fixed Income
25% Cash