Why Buffett’s Google Investment Is Worth Watching

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed Why Buffett’s Google Investment Is Worth Watching. Here’s an excerpt from the episode:

[Tobias] Let’s talk about some other moves of Berkshire. We know that they’ve invested in Google. It seemed like a very high price at the time.
They had an opportunity, lots of better opportunities over the 18 months beforehand, but they’ve done this private investment into Google. Does that make Google interesting from your perspective?

[Tim] I think the hyperscalers are interesting. Whether let’s talk about Google, I think Microsoft had some really attractive windows earlier this year that we did take advantage of. Meta, once again, I think we mentioned that a little bit last week with the litigation, but Meta on a multiple basis is really, really cheap.
They’ve probably had arguably the most success in monetising the AI in relation to the advertising spend. Amazon is highly, highly attractive in my estimation. There were even better opportunities earlier in the year, but I think that multiple is still pretty interesting there.

What Buffett did was, what’s crazy now is that these companies that were buying a tonne of stock back, now they actually have to issue stock in some cases to feed this CapEx engine here. They were asked to participate in it according to Greg Abel. Greg Abel called Warren Buffett and they talked about it.

I think they secured a 6.5% discount or something like that for their willingness to participate in it. They already were a shareholder in Google. That’s something that you as an individual can do by utilising options.

You sell the put at the strike that you’d be willing to own it at. If it expires and doesn’t expire below that strike price, you make your premium, whatever was acceptable to you at the time. Worst case, you end up owning it at that cheaper price.

Google is trading right around the range where Buffett and Berkshire bought that last big stake. If you wanted to follow them, it’s fertile grounds there. I think all those companies are really interesting.

There’s times where the market is going to feast on their negative cash flow now in some cases. Obviously, that racks up the multiples. You can’t value these companies on the same price to free cash flow as you had historically.

But if you make decent estimates in terms of what the returns on that invested capital are, I’d argue that some of them are quite cheap. I think Bill Ackman’s done a good job articulating that. I think lots of opportunities there.

Right now, we’ve talked about it before the show, Toby. The VIX is around 15. That obviously can be very different for certain stocks, certain industries.

The premiums aren’t overwhelming right now, but it’s still a good time. That’s the good thing is you don’t have to do any trade unless the premiums are acceptable to the risk that you’re taking.