Berkshire Hathaway (NYSE: BRK.A) invested around $600 million in the past few months in two big fintech companies, one in Brazil called StoneCo. Ltd. and another in India called Paytm. Both of these investments are focused on currently emerging markets. Todd Combs, one of Berkshire's two portfolio managers, spearheaded these investments. Mr. Combs, to whom Berkshire CEO Warren Buffett has given complete autonomy, has extensive experience in the banking and payments industry. Before joining Berkshire he ran a hedge fund, Castle Point Capital Management, which focused on financial companies. When Buffett was asked to comment about these new investments he refused to do so because this was, as he put it, 100% Comb's deal.
This is particularly surprising given the fact that Berkshire usually invests in blue-chip companies and other steady businesses such as utilities and insurance companies. Even more surprising is that they participated in StoneCo's IPO. Berkshire watchers have said that this is the first time that they recall the company participating in an IPO. During an annual meeting in 2012, Buffett was very critical of investing in IPOs. His argument was that "out of the thousands and thousands and thousands of businesses in the world...it can't be the most attractive thing" since sellers have the advantage of choosing when to enter the market.
Warren Buffett is a value investor, which means that he purchases stocks of companies that he believes are undervalued and that he can sell for more later on. However, it seems like sure options are not available in the industries he traditionally invests in, thus he's turned to new places where Berkshire can invest its pile of cash, which was around $111 at mid-year.
His investment shows how much the fintech industry has matured and how Silicon Valley has grown from a small seed post-2008 into a sector that now attracts almost $35 billion in venture capital in just the first nine months of 2018. Berkshire typically does not invest in early-stage startups so this is a good sign for the industry. Shares of Stone rose 30% to $31.09 last week. Berkshire has stated that they are interested in purchasing 14.2 million shares at an offering price of $24, marking the investment at $440 million. Stone is Brazil's fourth-largest payment processor by volume. The company also invested around $300 million in Paytm. Paytm has more than 300 million users which is more than PayPal (NASDAQ: PYPL) has around the world.