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.