Hacker News Reader

Comment by iambateman | Hacker News Reader

One of my growing curiosities is...what are the primarily-digital businesses which have “Buffett-Style Wonderfulness”?

Companies like American Express or BNSF have provided value for decades, and will continue to provide. Buffett used his extraordinary understanding to make great investments on these and other companies.

But I am a web guy, not a railroad guy. I want to use what understanding of the web I have to make good long-term investments in great digital companies. Unfortunately it seems like so many of them are in flux, in part because the market grabs their valuation and attaches truly insane expectations.

So my question...what are the digital businesses for which you have the highest expectations? Extra points for not mentioning AmaGooBookSoft.

My few are Stripe, Square, and Zillow.

View on HN

> Extra points for not mentioning AmaGooBookSoft.

Alphabet (parent company of Google) is gearing up to be the Berkshire Hathaway of technology companies. If you read Larry Page's letter announcing Alphabet[1], it's clearly informed by Berkshire's principles of operation. It's even reflected in the name: alpha bet, or investment return above the benchmark.

[1]: https://abc.xyz/

That's an incredible look into the name. I never realized this twist before, so thanks for that. Is it mentioned anywhere explicitly?

Oh never mind at the very end of abc.xyz.:)

Google had a string of big failures that I think set my hypothesis against them being successful at diversification. Even though Google Apps, Gmail, Maps, Android and others play a big role in moving them beyond search.

But you’re right, especially compared to Apple they’re positioning themselves to grow through acquisition. I do wonder if Amazon has the highest chance of maximizing that strategy.

I thought a typical VC fund needs 1 of 10 investments to be a Unicorn.

If watching Alphabet, wouldn't we see 9 failures or luke warm successes to the 1 big success?

Not if the claim is to have Berkshire-type success, which is more consistent success over very long timeframes compared to innovation and inventing new markets.

I should also add that by asking people to exclude amagoobooksoft you have effectively asked peolle to exclude the buffett companies.

Buffeft and Munger have regretted not investing in google and amazon when valuations were lower.

Other than apple, verisign and verisk are the main tech companies buffett is in.

http://fortune.com/2017/05/06/warren-buffett-berkshire-hatha...

I hear that. Just for the sake of interesting conversation...I think the AGBS industrial complex is pretty well covered elsewhere.

That’s interesting on verisign. Never would’ve thought of them.

Large income stream with little risk or need for investment.

I think you, and the other responses, missed it.

First, the company needs some sort of moat along with the ability to expand the moat. That is really hard to do in a software world when things can change so quickly.

There is a long list of other things, such as how complex the business is, the quality of the managers, the ability to reinvest capital, minimal need for additional capital expenditures, and so on.

As Berkshire has grown larger these requirements have shifted. What made the early success of Berkshire was taking the cash that the original textile company had, buying an insurance company, and then other companies that delivered great cash flow (See’s Candies, and newspapers to keep it simple.)

A lot of the moats that made those original businesses are less possible today, newspapers being the prime example.

I’ll just skip the rest and say what I think are great examples today:

Valve/Steam Unity Epic (unreal engine) Google (the search/ads side)

Amazon, as long as it continues to be well run and doesn’t venture in to anti-trust territory

Apple, not quite, but their moats have gotten much stronger

Airbnb

Price paid for these is another matter.

If a company has terrible or negative cash flow and/or weak or non existent moats, then even a bargain price may be a terrible deal.

Buffett has invested in Apple. So, there's that.

Buffett largely avoided tech because it didn't have a decades long track record. The answer may be "none of the above". It's not to say there are no good returns. Just a big harder to predict, without special knowledge. (Special can be: industry expert)

Instagram, Heroku, Plan Grid, and that YC company involved in shipping - I forget the name...

Flexport

Those might be good bets, but they're plainly not Buffet companies. Plan grid is still fundraising.

Buffet looks for a decades long track record of profits. Almost none of tech except companies from the 80s or 90s can provide that.

Maybe Intel? I couldn’t easily check their full profit history but it seemed that since early 80s they had only one year without profit - 1986.

Intel is in many ways Buffett-style bet currently

- long history of profits

- Low valuation by the market compared to rest of the tech sector (p/e was 12-14 last year before the hike)

- There is pressure from AMD and NVIDIA on the otherhand and Apple (own CPUs) and Google (TPUs) on the otherhand. But Intel still have pretty incredible moats in brand and manufacturing capacity

I don’t know enough about the management to say if it matches Buffett’s standards for great management

I think Buffett says consistent profits rather than decades worth. I think he'd like Flexport, maybe when they are a little more established.

> Buffett largely avoided tech because it didn't have a decades long track record.

I heard it was because he never really understood the tech behind the companies. He has also stated that he regrets not investing in Amazon early on.

Good point, sloppy omission on my part. Though, I think part of the lack of understanding was that they didn’t understand how to forecast cashflows for tech companies either. Buffett did invest in many (physical product) companies whose technology he didn’t understand - he understood their balance sheets.

> Buffett largely avoided tech because it didn't have a decades long track record.

He has been reading IBM's annual reports for the last 50 years.

And he invested in them. So, that’s not exactly a counterexample.

How is American Express not a primarily digital business?

Reply on news.ycombinator.com