Masayoshi Son vs. Warren Buffet

According a recent article in CNN Money Softbank’s billionaire chairman Masayoshi Son has said he wants to be the Warren Buffett of tech. The article went on to say “both investors make bold deals, and both look long term”. When Mr. Son wanted to pay $32 billion for a British semi-conductor company a director told him it was worth a 10th of the price. He proceeded to buy it for $32 billion. He makes a habit of paying what seem to be excessive premiums for his “unicorns”. And yet Mr. Son must be given his due. A number of bets have proven shrewd: AliBaba, WeChat and UBER.

Contrast this with Mr. Buffett who seeks “durable” companies with “high-grade management”, “good returns” and wait for it… a sensible price. In his recent shareholder letter he stated “That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers”. Ironically, for this brief entry, Softbank is often blamed for the current dizzying valuations.

Mr. Son sometimes seems to be flying by the seat of his pants and jumps into companies about which he may know little— at other times, he is known to provide baroque data analyses, that make his director’s eyes water, in an effort to help explain his latest crush. Persuasion might not be his aim though. Someone once said, in describing statistics, they are used much like a drunk uses a lamp post, more for support than illumination.

Meanwhile Softbank has accumulated $126B in debt which is rated as junk by Moody’s Investor Service and Standard & Poor's. Berkshire-Hathaway has a pathological aversion to leverage.

SoftBank started Vision Fund to expand its investment portfolio and use other people’s money in the process. Unlike most equity funds Vision is nearly half debt without the backing of the hard assets of the acquired companies. I am beginning to see a patterns here. In short they are using leverage to invest in illiquid companies, without positive cash flow or profits, that can’t be valued.

SoftBank has claims to have a 300 year investment horizon. I will be the first to decry current corporate propensity to manage quarter to quarter, but this is just shtick.

The comparison has taken on an additional and more recent tone as SoftBank appears to desire a piece of the European reinsurance company Swiss Re AG. The number being bandied about is $10B. This would be Mr. Son’s first foray outside of technology and although it is closer to Mr. Buffett’s backyard it hardly poses a threat.

A recent Wall Street Journal article quoted Matt Krna, a managing partner at Princeville Global “Anyone can be optimistic,” Masa really makes enormous bets on his beliefs.” Mr. Son may prove to be a visionary one day. Warren Buffett has proven his reliability over the last 50 years so my bet is on the Oracle of Omaha.

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