How Warren Buffett Invests in Platforms

How Warren Buffett Invests in Platforms

Interestingly, one of the first people to notice the platform economy was Warren Buffett. To explain, Berkshire Hathaway (NYSE: BRK.A) invests in several platforms.

 For instance, Berkshire held 249.5 million shares of Apple in 4th Quarter 2018, CNBC estimates. In addition, Buffett tried to invest $3 billion in the digital transportation platform Uber last year, Bloomberg reports.

Notably, Apple reports $225.4 billion in cash on hand on 30 April 2019, CNBC reports. In addition, plans to buy back $75 billion of its own stock. Hence, Buffett invests in cash-rich platforms that treat their shareholders well.

In addition, Apple will pay a 77₵ dividend on 16 May 2019. That dividend grew by 4₵ from 11 February 2019 when it was 73₵. Plus, I think Mr. Market priced Apple shares fairly at $211.14 on 3 May 2019.

Berkshire Hathaway invests in Amazon

Moreover, Buffett admits he made a mistake by not investing in Amazon in 1994, 1997, and the 2000s.

In fact, Uncle Warren tells CNBC, “Yeah, I’ve been a fan, and I’ve been an idiot for not buying.” Amazon. On the other hand, Buffett admits he is leery of Amazon despite his admiration for CEO Jeff Bezos, Business Insider notes.

Interestingly, Buffett admits Berkshire Hathaway (NYSE: BRK.B) “bought some Amazon” some, CNBC reveals. However, one of Berkshire’s other managers and not Buffett made the purchase.

Thus, Buffett either invests in stable platforms that generate a lot of cash (Apple), or potentially lucrative platforms at a good price (Uber). In addition, Buffett will pass on any risky but lucrative platform that is not cheap.

Warren Buffett’s Version of Platform Capitalism

Uniquely, Buffett thinks of platform capitalism as a “toll bridge” rather than rent. For example, Seeking Alpha contributor Tim Au describes Buffett as practicing a “toll bridge model” of investment.

To elaborate, a toll bridge is usually the only connection between points, like the two sides of a river. If people want to cross the river they have to pay the toll, swim, or spend more money on a boat.

Consequently, it is easy to think of companies like Netflix, Microsoft, Amazon, Alphabet, etc. as toll bridges or rather toll booths. To explain, these portals control access to a digital ecosystem others want to enter. Hence, the companies earn revenue by charging a toll.

In addition, some companies allow free access to the ecosystem but charge for some of its features. For instance, Google’s search engine is free for anybody to use, but Alphabet charges you to advertise on it.

How Buffett’s Toll Bridge Capitalism works

Thus, Buffett looks for toll bridges he can buy or invest in. Not surprisingly, current Berkshire Hathaway (NYSE: BRK.B) holdings include: some toll booths.”

or instance, the Burlington Northern Santa Fe (BNSF) railway charges a toll for hauling many kinds of freight. In addition, the BNSF has an effective monopoly on bulk freight transport in many parts of the United States.

Other Berkshire Holdings include; Business Wire (a platform for press releases), pipelines, utilities, and many newspapers; BH Media. Moreover, Buffett used to be a big investor in television stations. To explain, newspapers like the Buffalo News held an effective monopoly on print advertising and news in most American cities for generations.

In addition, broadcast TV stations used to operate an advertising monopoly reminiscent of Google. To explain, the TV stations give their product television away for free. However, the stations charge for advertising during the broadcasts.

On the other hand, Buffett is leaving television and newspapers as those businesses lose money. Uncle Warren understands that a toll booth without toll is useless.

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