The Blues Brothers

Ackman invests in Buffett

Image source:

What's going on?

Global stocks have taken a bath in recent days, but there’s at least one investor “buying the dip”. News broke late on Wednesday that billionaire Bill Ackman’s investment firm had taken a large stake in that of another billionaire – Warren Buffett’s Berkshire Hathaway.

What does this mean?

It’s a match made in heaven: both Buffett and Ackman are “value investors” who seek out strong, hard-to-compete-with companies they think the market’s underestimating. For Buffett, the latest firm to fall into that category is Amazon: after years of avoiding the ecommerce giant, $500 billion Berkshire upped its stake in the company to more than $1 billion last quarter.

But apart from funding an oil merger, Buffett hasn’t seen many other big investment opportunities recently. Berkshire has built up a record $122 billion cash pile, with Buffett convinced even shares in his own firm look too expensive to justify increasing current buybacks. Bill Ackman, however, begs to differ: in its first big bet since Starbucks last year, his Pershing Square fund has invested $750 million in Berkshire.

Why should I care?

For markets: One wants dry white toast
Berkshire’s shares rose slightly on Thursday, partially reversing a 7% decline this month. Other investors may trust Ackman’s judgment: Pershing Square has, after all, delivered his investors a 635% return since 2004 – and nearly 50% this year alone. Still, Ackman won’t get a chance to work on his “activist investor” chops with this particular stake: he’s bought Class B shares in Berkshire that don’t carry any voting rights.

The bigger picture: …the other wants four fried chickens and a Coke.
Activist investors were active elsewhere on Thursday: a famous early critic of Bernie Madoff accused industrial giant General Electric of widespread accounting fraud in the wake of its latest earnings report, sending its stock down 11%. The claims were even more extreme than those laid against the door of UK litigation finance firm Burford Capital last week – which initially wiped out 65% of that company’s market value.

Originally posted as part of the Finimize daily email.

The top 2 financial news stories in 3 minutes. Join over one million Finimizers

Read next

World Of Walcraft

Sign up to Finimize

Get the two most important global financial news stories each day. Sent at midnight UK time.

Get started with one email a day

The top financial news stories in 3 minutes.