Why Warren Buffett would never buy Afterpay shares

Many investors have reaped big gains from technology shares both in the US and Australia in recent years.

Afterpay Ltd (ASX: APT) is a good local example. Afterpay shares have risen more than 700% since the Covid-19 lockdown trough in late March.

But the world’s most famous share investor, Warren Buffett, avoids innovative companies like the plague.

“Our reaction to a fermenting industry is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride,” he said in a letter to Berkshire Hathaway shareholders in 1996.

“The reason for that is simple… We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now.”

The fourth-richest person in the world admits that innovative and fast-changing sectors could provide massive gains, but the long-term uncertainty puts him and his vice chair Charlie Munger off.

“I should emphasise that, as citizens, Charlie and I welcome change: Fresh ideas, new products, innovative processes and the like cause our country’s standard of living to rise, and that’s clearly good.”

Coke is it for Warren Buffett

The portfolio of Buffett’s investment company Berkshire Hathaway certainly reflects the “slow and steady” philosophy. 

Big household names that have stood the test of time, like Walt Disney Co (NYSE: DIS), McDonald’s Corp (NYSE: MCD) and Wells Fargo & Co (NYSE: WFC), have all made plenty of money for Buffett.

But perhaps the best example of the “boring” shares strategy is Coca-Cola Co (NYSE: KO).

Not only does the beverage maker tick all the boxes for investment from Berkshire Hathaway, the business itself operates with a Buffett-like long-term view.

Coca-Cola was founded in the late 19th century, making a very inexpensive product – syrup. Then profiting for more than 130 years selling the image – not the beverage itself – that drinking it fits a certain lifestyle.

Buffett called companies such as this ‘The Inevitables’.

“Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will The Inevitables,” he said.

“But I would rather be certain of a good result than hopeful of a great one.”

Buffett reportedly drinks 5 cans of Coke each day, declaring in 2015 he is “one quarter Coca-Cola” in an interview with Fortune.

But what about Apple?

This is all good and well, but isn’t Berkshire Hathaway’s most valuable holding computer company Apple Inc (NASDAQ: AAPL)?

Buffett has said many times in the past that he’s averse to investing in technology, because he doesn’t understand the sector – and it doesn’t fit the stability criteria.

But indeed, Buffett’s company took a US$1 billion piece of Apple in 2016.

The Oracle of Omaha admitted afterwards that the transaction was executed by one of his investment managers.

Todd Combs and Ted Weschler joined Berkshire Hathaway in 2016, according to CBInsights, and Buffett authorised them to do deals without getting approvals from him.

So Buffett likely would not have felt comfortable with Apple. But he does recognise that his staff, with a different knowledge set, might have a different opinion.

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• Can these two ASX buy now, pay later companies become the next Afterpay?
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Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Berkshire Hathaway (B shares) and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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