Buffett: Social-Networking Sites are Overpriced Ahead of IPOs | Hacker News Reader

Buffett: Social-Networking Sites are Overpriced Ahead of IPOs

businessweek.com

25 pointsgatsby12 comments

The fascinating thing about Buffet is that so many people claim to respect him and his opinions while they do the exact opposite.

Fundamental value investing? Investing only in companies that you really understand? Taking a long view? All seem to be horribly out of fashion the moment people start feeling exuberant. While people are investing millions in yet-another-photo-service, what was the last big thing Buffet bought into, railroads?

It's hard to compare tech investors to Warren Buffet. He doesn't do tech because he doesn't know it. He invests in what he knows, which tend to be companies that have a physical deliverable.

I think he knows about tech. I think he doesn't invest in it because it's volatile.

In the past he's pretty much said straight out he doesn't understand it. You can take that a couple of different ways. I doubt he's a technophobe, but I wouldn't be surprised if he didn't really understand the difference between, say, an application and and operating system.

Well I'd argue Warren has bought into tech, just physical delivery tech, not pure software tech. This is understandable tech.

Particularly I'm thinking of Iscar, who use some of the most advanced manufacturing techniques to make special tools for metal working. It would be hard to argue that this company don't very heavily leverage software, to the point where is part of their product.

http://www.iscar.com/

MiTek is another company, who specifically sell engineering software, along with building technology: connectors, joists, beams, roofing etc.

www.mitek.com

Exactly. Railroads have been around 150+ years, and they'll probably be around another 150. No social networking company has even been around 10. Who knows if there will be a facebook in 2020?

You can still respect someone and not subscribe to all of their philosophies/ideologies. They aren't mutually exclusive.

I have enormous respect for Buffet. He clearly knows what he's doing. However, his investment style isn't compatible with my appetite for risk.

As noted in the article, Buffett also shuns tech investments - and Buffett has said he doesn't invest in something he can't understand well, and he doesn't understand tech.

And he's not wrong. Nobody understands the conditions for the future success of companies on the edge of new technologies on the kind of level that makes Buffett comfortable enough to invest.

Exactly, Buffett's whole investment philosophy revolves around margin of safety. What's the margin of safety in a fast growing speculative space such as tech? Zero.

Not to say that you can't pick winners, but it is wholly different from buying a controlling interest in a company which has the potential to reap high profits with tighter management (see, Coke, Wrigleys, Wendy's, Railroads, etc).

Really can't argue with the Oracle that there that the majority of these are over-valued. In a sense that just means they are priced for success though we know many will fail or be limited niche businesses.

The key statement though as it relates to a specific company is: “Some will be huge winners, which will make up for the rest.”

while i thought only atomic bomb explosion can have such dynamic, it happens Groupon valuation too:

from http://www.bloomberg.com/news/2011-03-17/groupon-is-said-to-... :

Groupon Inc. has held talks with banks about an initial public offering that would value the online-coupon company at as much as $25 billion ... Groupon was valued at about $1.3 billion last April, when it raised $135 million from investors, including Digital Sky Technologies. It contemplated more funding at a $3 billion valuation in November, shortly before Google’s offer. An investment of $950 million, completed in January, pegged Groupon’s worth at $4.75 billion.

Buffett has said before that he doesn't invest in tech because he doesn't know how to evaluate the pricing power of these companies and because they are more prone to industry change.

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