For about the past 50 years, Warren Buffett has been buying companies, such as GEICO, Duracell, and BNSF Railroad, and buying shares in major U.S companies, such as American Express ( owning 17.6% of shares), Coca Cola ( 9.4%), and Apple ( 5.2%). Warren’s company is called Berkshire Hathaway, and it is publicly traded on the NYSE. Over that 50 year period, the average annual growth in the book value of Berkshire Hathaway has been 19% versus 9.7% for the S&P 500. That is why in the financial world he is called the Oracle of Omaha.
The goal of Berkshire Hathaway is to constantly use the cash these investment spin off each year, and invest it new opportunities that will be valuable long term investments for the Berkshire Hathaway shareholders. The big news recently is that Warren Buffett is now sitting on a fast growing pile of cash ( a record $128 billion for the firm) and can’t find the kind of investments that fit his criteria for investing. Warren is committed to take his time and not compromise his standards.
Sequoia Capital is one of the most successful and respected venture capital companies. It is located in Menlo Park, California and it invests in incubation, seed stage, start-up stage, and growth stage investments in private technology companies. The company was founded in 1972 and has made early investments in over 250 companies, including Apple, Google, Oracle, PayPal, and many other major tech players of today.
Almost two years ago Sequoia launched its Global Growth Fund III, collecting funds from investors who then hopefully make money by having Sequoia wisely use these funds to invest in the type of companies they have in the past. Sequoia collected $8.0 billion, the largest amount a venture capital firm has ever collected for a new fund they were launching. Surprisingly, almost two years later, Sequoia has only invested 20% of the $8 billion. What gives! Very simply they have not found the opportunities that match well enough with their criteria. Wisely, as we saw with Warren Buffett, Sequoia management plans to take its time, and not compromise their standards.
Too often, when a person searches for a better approach, and comes up with only mediocre options, there is a growing feeling that you can’t just keep looking; you have to do something. This happens often when you are under the gun to perform. Too often, you will compromise your standards and select one of the mediocre options, just to be finished and off to implementing something. Learn from the giants, don’t stop holding out for something really significant. The time and effort of you and your organization are very scarce resources; use them wisely!