Social Capital CEO Chamath Palihapitiya argued Tuesday on CNBC that Jeff Bezos is a better investor than Warren Buffett, pointing to the Amazon CEO and founder’s history of reinvesting in the business.
“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,” Palihapitiya said on “Squawk Box.”
Palihapitiya has in recent weeks become particularly outspoken about his disdain for stock buybacks, saying last month they represented “a growing strain of incompetence amongst CEOs and amongst boards.” On Tuesday, he called them a “fundamentally idiotic business practice.”
Under Bezos’ leadership, Amazon has largely eschewed stock buybacks but reinvested heavily into its business to drive future growth and capture more market share. Amazon recently told shareholders they “may want to take a seat, because we’re not thinking small,” while explaining it plans to invest its expected $4 billion second-quarter profit in coronavirus-related efforts.
Buffett, the legendary investor and CEO of Berkshire Hathaway, has touted the value of share repurchases, although he hasn’t given them an unconditional stamp of approval. He repeated that philosophy at Berkshire Hathaway’s recent shareholder meeting, arguing they need to be done in a price- and need-sensitive manner.
“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,” Buffett said. He added some stock buyback programs have been “stupid,” but not “immoral.”
Palihapitiya said he is in agreement 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,” said the early Facebook executive turned venture capitalist.
Palihapitiya said he believes there should be a checklist companies go through before they buy back stock, including necessary 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,” he said.
“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.