Buying stocks of companies with short track records can be risky. Berkshire’s investment managers have purchased a couple of such stocks, and paid the price. Two examples:
StoneCo
Price decline from 52-week high, 87%
Price decline from purchase price, 55%
Snowflake
Price decline from 52-week high, 60%
Price decline from purchase price, 26%
Buffett prefers proven companies.
Berkshire’s investment managers have purchased a couple of such stocks, and paid the price. Two examples:
Well, I guess one could say that the fat lady hasn’t sung yet. Things may change. The positions haven’t been closed.
But you’re right, it’s certainly a big risk in the short term at a minimum.
I think we are expected to assume that, being money managers at Berkshire, they probably weren’t trading based on a prediction of a short term price movement.
Rather, that they felt they could look far enough into the future with enough certainty to conclude that in a few years the business would be worth more than what they paid.
And not just a little: enough more that the elapsed time won’t have made it a bad rate of return.
To put it in my terms, I think that they thought that the price paid was less than 10 times the highly likely profits 5-10 years out.
I can’t imagine how they arrived at that conclusion, but that’s the sort of calculus I think they probably used.
Maybe a different number of years, but I am relatively sure they were not planning on being able to sell at a nosebleed multiple of then-current earning power.
Jim
Buying stocks of companies with short track records can be risky. … Snowflake - Price decline from 52-week high, 60%
I think you’re confusing volatility with risk. Occidental Petroleum’s price fell from $83 in June 2018 to about $9 in Oct 2020, which is a drop of 89%! Yes, 89%. That’s a steeper decline than Snowflake or any tech stock I own. And yet OXY, which WEB loves, is hardly an “unproven” company.
Just because a stock has a long track record doesn’t mean it can’t drop that much. A “proven” company like Disney is down about 50% from the peak.
Snowflake has almost $4B of cash on hand, and $1.4B of revenue, most of which is recurring annually. It’s volatile, just like OXY is volatile. Neither company is risky, IMO. As WEB said, if you can’t stomach 50% drawdowns (which BRK has experienced multiple times), you shouldn’t be in the stock market.
Buying stocks of companies with short track records can be risky. Berkshire’s investment managers have purchased a couple of such stocks, and paid the price
An unproven company is just that unproven. One can argue that the investment manager had done his due diligence or has a view on future.
What about proven companies, where WEB for decades talked about why you should avoid them? Airlines. At the end of the day he lost money, on an industry he made it a poster child of poor investment choice, and he didn’t listen to himself.
I think Berkshire lost more than $1.5 Billion on ConocoPhillips, yet it didn’t stop him from investing in OXY heavily after the stock ran up from $9 to $40+. Remember the $9 happened after he made the preferred investment, so by then he should have some idea about the company.
We like to attach various narratives to Buffett, but he does what he does. There is an inherent desire to provide a narrative.
Remember this investment Buffett made in an obscure Chinese company 13 years ago. The $230 million he invested then is worth close to $10 billion today, a 40+ bagger.
https://fortune.com/2021/03/02/warren-buffett-investments-be…
Munger and Buffett reportedly clashed about both BYD and Costco. Buffett against advice from Munger sold out Costco, claiming it was too expensive. Luckily he listened to Munger on BYD.
Snowflake …
Price decline from purchase price, 26%
I believe SNOW was bought at the IPO price of $120. It’s now at about $160, which is roughly a 33% increase from the purchase price.
“I believe SNOW was bought at the IPO price of $120.”
Shares were bought at both the IPO price and the opening price for an average cost basis of $221.
So far, the two T’s investment philosophy is not quite the same as Buffett’s. I hope they won’t take over the whole portfolio after Buffett.
If they are not, then who is going to manage?
the purchases were in 2 parts. Before the IPO and and at the IPO with a cost basis of 120.00