Berkshire Hathaway, Finance, and Google: A Complex Relationship

The relationship between Berkshire Hathaway, the financial world, and Google (now Alphabet Inc.) is a nuanced one, primarily defined by investment decisions and philosophical differences. While Warren Buffett, the Chairman and CEO of Berkshire Hathaway, is a legendary investor, his historical hesitation regarding technology stocks, particularly Google, is a significant point of discussion.

Berkshire Hathaway’s core investment strategy centers on value investing: identifying companies with strong fundamentals, understandable business models, and durable competitive advantages trading at a price below their intrinsic value. This approach historically favored companies in established industries such as insurance, consumer goods, and railroads. Buffett often emphasized the importance of understanding a business thoroughly before investing, and for many years, he admitted to not fully grasping the intricacies of the technology sector.

This lack of perceived understanding was a key reason why Berkshire Hathaway initially shied away from investing heavily in Google early in its growth. While Google revolutionized search and online advertising, Buffett and Munger, Berkshire’s Vice Chairman, expressed concerns about the sustainability of its competitive advantage in the face of rapid technological change. They questioned whether Google’s dominance could be easily disrupted by innovative competitors.

However, the landscape shifted. By the late 2010s, Google’s (Alphabet’s) entrenched position in search, online advertising, and other areas became increasingly evident. Its network effects, vast data resources, and innovative culture created a seemingly unassailable moat. This led to a gradual change in Berkshire Hathaway’s perspective.

In 2018, Berkshire Hathaway revealed a stake in Apple, which was initially purchased by one of Buffett’s portfolio managers, Todd Combs or Ted Weschler. This investment signaled a willingness to embrace technology companies, albeit those with strong branding, loyal customer bases, and relatively predictable revenue streams. Subsequently, Berkshire Hathaway also began indirectly benefiting from Google’s success.

This indirect benefit comes primarily through Berkshire Hathaway’s significant investment in Coca-Cola. Coca-Cola is a major advertiser on Google’s platforms, contributing significantly to Google’s revenue. Therefore, Berkshire Hathaway, as a major shareholder in Coca-Cola, benefits from Coca-Cola’s marketing effectiveness, which is partially fueled by Google’s advertising services.

Furthermore, in recent years, Berkshire Hathaway has subtly increased its exposure to Alphabet. While not a massive holding compared to its other investments, it demonstrates a gradual shift towards recognizing the enduring value and competitive strength of Google/Alphabet. The rationale likely stems from the recognition of Alphabet’s diversified revenue streams, including YouTube, cloud computing (Google Cloud), and its ventures into artificial intelligence and other cutting-edge technologies.

In conclusion, the relationship between Berkshire Hathaway, the broader financial sector, and Google reflects a journey of evolving perspectives. While initially hesitant due to Buffett’s preference for understandable businesses, Berkshire Hathaway’s eventual investment in Apple and its indirect and direct exposure to Google/Alphabet highlight the enduring power of strong fundamentals and dominant market positions, even in the rapidly changing world of technology. It underscores the importance of adapting investment strategies to recognize and capitalize on opportunities presented by innovative companies, even if they initially appear outside one’s comfort zone.