Social Capital CEO Chamath Palihapitiya has put forward his set of arguments on who he thinks is better, Jeff Bezos or Warren Buffett.
Palihapitiya in recent weeks had become unusually outspoken about his disdain for stock buybacks, saying last month they embodied “a growing strain of incompetence amongst CEOs and amongst boards.” He called them a “fundamentally idiotic business practice.”
“People used to lambaste Jeff Bezos for not being profitable, but when you looked under the hood, he was the single best investor of our generation, even better than Buffett, because he would take billions of dollars of free cash flow and invest it into the future.”
CEO – Social Capital
Under Bezos’ leadership, Amazon has largely abstained from stock buybacks but reinvested massively into its business to drive future growth and gain more market share. Amazon recently told shareholders they “may want to take a seat, because we’re not thinking small,” while explaining its plans to invest its awaited $4 billion second-quarter profit in coronavirus-related efforts.
“When the conditions are right, it should also be obvious to repurchase shares and there shouldn’t be the slightest taint to it any more than there is to dividends.”
CEO – Berkshire Hathaway
Renowned International Investor
Mr. Buffett, CEO of Berkshire Hathaway and world-renowned investor, on the other hand, has always promoted the advantage of share repurchases, although he hasn’t given them an unequivocal stamp of endorsement. He repeated that opinion at Berkshire Hathaway’s recent shareholder meeting, claiming that they need to be done at a price and in a need-sensitive manner.
Mr. Palihapitiya is in conjunction with Buffett on the need for buybacks to be done “under the right conditions.” “You don’t send the money out the door before you take care of yourself and invest for your own future.”
Palihapitiya gathers that there should be a checklist which corporations could through before they purchase back stock, including significant spending on research and development and ensuring the CEO isn’t compensated “600 times” more than “the lowest employee in your company.”
“Coming out of 2020, I think what we should realize is we have a very brittle economy, a very fragile ecosystem of companies that are over-levered. We need to create incentives for these folks to save and to invest in the future,” Mr. Palihapitiya said in an interview with CNBC.
“There is a business case to be made in every company to either save and/or to plan for the future, and instead to just give it back randomly in the open market is one of the dumbest business decisions you could make,” he added.