Warren Buffett is famously uninterested in modern technology, and yet Google Inc. is acting very much like a modern day Berkshire Hathaway, the firm he took control of 50 years ago that has outperformed the S&P 500 over every five-year interval since.
Berkshire Hathaway Inc. was a textile firm but Mr. Buffett used it as a vehicle to expand into financial services, media, food and beverage, construction, energy, railroads and a whole lot more. If you'd invested $10,000 in Berkshire Hathaway when Mr. Buffett took charge in 1964, you'd have about $60-million today. Just last week the stock hit a milestone of $200,000 per share.
With its stock price near $600 (U.S.) and a market cap approaching $400-billion, it is unlikely Google could reward investors the same way 50 years from now.
But a close look at the company – exactly 10 years, incidentally, after its IPO on Aug. 19, 2004 – shows it's surprisingly similar to Berkshire Hathaway in many ways, and investors can still be rewarded by watching what the smart folks at Google do.
The tech giant began as a search engine company in 2002, but has since branched out into other industries from telecommunications, health sciences, robotics, military defence, media, and even automotive with the development of a driverless car.
Just like Berkshire Hathaway, Google is expanding with patience and seeing value where others might not.
Critics have scoffed at some of the high prices Google has paid for companies such as Android, YouTube, smart-home vendor Nest and numerous robotics companies. But look closer and the Mountain View, Calif.-based company appears to be using the Buffett playbook with each investment.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price," Mr. Buffett said in a letter to his shareholders in 1989.
In July, 2005, and with a long-term view on wireless explosion, Google quietly acquired unknown startup software company Android Inc. for an undisclosed price, estimated at $50-million.
Google executives have called it the best deal they ever made. Today there are more than one billion monthly Android users making up 84.7 per cent of the smartphone market. Android has grown well beyond phones and tablets and is embedded in myriad devices, positioning Google well for a number of future big trends such as the "Internet of Things," smart homes, energy and auto networks, digital health.
One year after the Android acquisition, Google made a head-scratcher of a deal when it purchased YouTube in 2006 for $1.65-billion. Observers called the deal expensive, and questioned why a search and digital advertising company would buy a website where people upload things including family videos and silly dog antics.
Today, YouTube is considered a brilliant and low-cost acquisition. It generates profit and positions Google as a competitor to traditional television networks and other digital media companies such as Netflix, rocking the media landscape.
With YouTube, Google showed the kind of foresight Mr. Buffett did with his most famous investments: American Express and Coca-Cola, two stocks he has never sold. Now the largest single shareholder in Amex, Mr. Buffett began buying the stock in the 1960s when the company was saddled with bad loans. Instead of looking at the short-term, Mr. Buffett envisioned a world dominated by credit card purchases. As for Coke, he began buying the stock in the 1980s, around the time it introduced a new formula that consumers hated, and when competitors were arriving in droves. It has since cemented its dominance and seen its market share soar.
The list of Google investments based on Buffett-like patience and long-term strategy is growing by the week. It ranges from Boston Dynamics, the eighth robotics company Google bought in 2013, to the $3.2-billion purchase of smart home firm Nest, to a $258-million stake in Uber, the global car-booking service that has the taxi industry aflutter.
Google Ventures, its investment engine, has $1.5-billion under management and stakes in about 250 companies. Twenty of its portfolio companies have either gone public, such as RetailMeNot, or were acquired wholly.
As Mr. Buffett is fond of saying, good jockeys succeed on good horses, but even they can't win on nags. Much of their success is picking the right horse to ride. They inevitably make choices that don't pan out, but they know more about racehorses than the average bettor.
The same lessons apply to investors. I'm betting the sharp minds at Google know more about technology and its trends than the average investor. In other words, one way to make money might be to watch where Google is investing, just like the cottage industry that sprouted to watch where Mr. Buffett puts his cash.
Paul Barter teaches technology strategy in the MBA program at the Schulich School of Business, is a venture capital services adviser at MaRS and vice-president of research at technology services firm T4G Limited. He owns stock in Google as well as its competitors, Amazon and Apple.