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Social Capital CEO Chamath Palihapitiya argued on CNBC Tuesday that Jeff Bezos is a better investor than Warren Buffett, pointing to the story of reinvestment in the business of the CEO and founder of Amazon.
“People used to criticize Jeff Bezos for not being profitable, but when you looked under the hood, he was the best investor of our generation, even better than Buffett, because he would take billions of dollars of free cash flow and invest it in the future, “said Palihapitiya in” Squawk Box “.
In recent weeks, Palihapitiya has become particularly outspoken about his disdain for share buybacks, saying last month that they represented “a growing strain of incompetence between CEOs and boards.” On Tuesday, he called it a “fundamentally idiotic business practice.”
Under Bezos’ leadership, Amazon largely avoided share buybacks, but heavily reinvested in its business to drive future growth and capture more market share. Amazon recently told shareholders that “they may want to take a seat because we are not thinking small,” while explaining that it plans to invest its expected profit of $ 4 billion in the second quarter in efforts related to the coronavirus.
Buffett, the legendary Berkshire Hathaway investor and CEO, has touted the value of share buybacks, though he has not given them an unconditional stamp of approval. He repeated that philosophy at the recent Berkshire Hathaway shareholders meeting, arguing that they must be done in a price and need sensitive manner.
“When the conditions are right, it should also be obvious to buy back stocks and there shouldn’t be the slightest blemish than dividends,” Buffett said. He added that some share buyback programs have been “stupid,” but not “immoral.”
Palihapitiya said he agrees with Buffett on the need for buybacks to be carried out “under the right conditions.” “He doesn’t send money out the door before taking care of himself and investing for his own future,” said the first Facebook executive-turned-venture capitalist.
Palihapitiya said he believes there should be a checklist that companies should review before buying stocks, including the necessary spending on research and development and ensuring that the CEO is not compensated “600 times” more than “the lowest employee in his company”.
“As we come out of 2020, I think we need to realize that we have a very fragile economy, a very fragile ecosystem of companies that are overstretched. We need to create incentives for these people to save and invest in the future.” he said.
“You have to do a business case at each company to save and / or plan for the future, and instead of randomly returning it to the open market it is one of the dumbest business decisions you could make,” he added. .
