Tue. Dec 7th, 2021


There are some familiar rules in investing. Do not use too much leverage. Do not tell your peers material non-public information. And, perhaps most important of all, if you’re on a hot streak, avoid comparisons to Warren Buffett.

Breaking that final rule has left large hedge fund names a wreck. Remember Eddie Lampert on the front page of Businessweek in 2004, just before he oversaw the collapse of Sears? Or maybe Bill Ackman’s infamous “Baby Buffett” Forbes coverage 11 years later, which is almost half a decade of arm yields for its fund Pershing Square.

We now have another name to add to this list: Chamath Palihapitiya, the Spac pioneer.

Back in February, the former Facebook engineer who was a Twitter talker was everywhere, as his several pre- and post-merger Spacs – names like Virgin Galactic, Clover Health and Opendoor – hit new, probably insane, day-to-day highlights has. Then came the inevitable. The Warren Buffett Comparison. Again in Business Week.

But, unlike some other wanna-buffets, Chamath was only too happy to invite the comparison. From the piece:

On top of that, there’s the whole Buffett thing. He longs to grow his empire into a 21st-century Berkshire Hathaway-like conglomerate, complete with investor conference calls, an analyst day and its own must-have annual meeting. All of this, in his vision, will generate enough wealth to reduce the inequality gap in America. That’s pretty grandiose stuff.

“I want a Berkshire-like instrument that is everything, you know, should not sound selfish, but everything that is Chamath, everything with social capital,” he said.

The timing was great. Just five days later on February 17, the IPOX Spac index peaked, before falling sharply. It has since been 25 percent lower. Some of its Spacs, such as Virgin Galactic, sit more than 50 percent below their all-time highs.

But the Businessweek article was not the only Buffett comparison. Because to be Buffett, you do not have to just believe. You have to follow.

One of Buffett’s most popular investments is the American car insurer Geico. After falling in love with the business in the 1950s, Berkshire Hathaway finally managed to take it private in 1996.

Chamath apparently had the same brilliant idea. Invest in an insurer, and Bob is your billionaire uncle. Fortunately, startup car insurer Metromile went via a Spac public. So Chamath, along with other investors, including dotcom lottery ticket winner Mark Cuban, bumped about $ 160 million into his private investment in public equity rounds (also known as the infamous PIPE).

Of course he also has the Twitter atmosphere to make the Buffett comparison at home:

Metromyl has become public on February 10 at a market capitalization of $ 2.3 billion. And since it’s traded like how you can expect an insurer valued at seven times its 2022 estimated premiums (yes, not profits, premiums) to trade.

Like a dog:

After a 82 percent reduction in its price after merging from $ 18 to just over $ 3, Metromile investors were put out of their misery on Monday after announced Lemonade, an equally highly valued challenger insurer, took it privately for just $ 500 million, or $ 200 million if you offset its cash stack.

We’m not sure about you. But we can not remember Buffett losing 80 percent on Geico in nine months. And then the company is taken privately.

However, there is another Buffettism that emerges here. Something about tides and naked swimming. We’m sure you know the one.

Related links:
Technical investor Chamath Palihapitiya: ‘I reserve the right to change my mind’ – FT





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