No. of Recommendations: 34
Umm [ on Berkshire not purchasing Google and Meta sub 100 ]
I am not commenting on the rightness or wrongness of those purchases/non-purchases, but I am willing to bet the reason Buffett made the decisions he made at those times had a lot to do with how the share counts of those companies were growing or shrinking at that time.The reason might be even more straight-forward. Buffett doesn't have confidence about the durability of Google's earnings, and Buffett has even less confidence about Facebook's earnings, one the very long-term. I'll focus on Google as it is the firm they are more likely to purchase of the two. Charlie has expressed that he believes Google has an extremely strong moat, which is to say that it has durable earnings, but I cannot recall any comment by Buffett himself about Google having a strong moat. If you have a reference to it, please let me know. He has made repeated comments about how excellent the business model is, but he is very specific with his words and if you listen closely it is always referencing that it would have
been a good investment in the past, and he admits missing it, but he does not express an opinion about how the business will be in the distant future. Conversely, he has made many comments about this being difficult to predict (in his view).
In the way I define Steadfastness, Google is Steadfast for many people, but not for Buffett. Steadfastness is a function both (i) the fact of how earnings ensue, (ii) and the observer themselves. In particular, Steadfastness requires:
1. No reasonable chance of the business going away completely in 40 years. A well made bridge continues to be useful after 40 years, but high tech data centre ('now' it is high tech) might not be after 40 years.
2. The earnings remaining above
some lower bound that you can write down today (even if using some low bar) after 20 years. This lower bound (not the central expectation) is also used for the IV10/price calculation.
3. The above being appraised by the particular person in question. This is sometimes the most overlooked part of the definition but is equally as important as the first two. When the quote halves, such as the atmosphere of DG now, you want to be sure that you appraised the Steadfastness (not only intellectually, but internally and viscerally - you really understand the business) so that you do not change your opinion about the longevity of the business as a section to the market's behaviour itself rather than any significant change in the business's long-term audience and earnings durability.
When Google was quoted with a market cap of $200 billion, Buffet remarked: "It is not hard to see that Google is phenomenal company. Google is valued at $200 billion in the market so to make 14% per year it has to be worth $400 billion if 5 years. It may very well be, it may be valued at 5 or 6 hundred billion, but I'm not smart enough to figure that out. In tech you get change and the question is who is the best at predicting change, and I'm not very good at that". He then continued to remark at length how he cannot predict whether other companies will take business from them.
https://www.youtube.com/watch?v=B8594aLZgRo (the above quote from 2:00).
If Charlie managed Berkshire's capital allocation alone, it would not surprise me if Google was not purchased earlier, or even in recent years. My impression is that they question each other as litmus tests and whilst they have a sense of autonomy, in the end they tend to make the large purchases pretty much only on consensus.
- Manlobbi
