With Snowflake IPO investment, Berkshire's portfolio managers again venture outside Buffett's comfort zone

Berkshire Hathaway has agreed to buy roughly $550 million worth of Snowflake, a cloud data warehousing company set to debut this coming week in one of the most highly-anticipated initial public offerings of the year.

According to an SEC filing earlier this week, Berkshire will buy $250 million of the company's Class A shares directly from Snowflake at the IPO price. At $80 per share, the current midpoint of the expected range, that would be around 3.1 million shares.

Berkshire will add a bit more than 4 million additional shares in a purchase from an existing shareholder (reportedly former CEO Robert Muglia), also at the IPO price.

This is clearly not a Buffett decision.

First, he avoids any company in an industry he doesn't "understand," which almost certainly includes one that boasts its Cloud Data Platform has solved "the decades-old problem of data silos and data governance ... (enabling) customers to unify and query data to support a wide variety of use cases ... (and providing) frictionless and governed data access."

(But, as he explained in this clip from the 2000 annual meeting, not "understanding" a company doesn't necessarily mean he can't figure out what the product is or what it does for people. It does mean, "We just don't know the economics of it ten years from now.")

Secondly, he doesn't like IPOs. After the 2019 meeting, Buffett told CNBC, "In 54 years, I don’t think Berkshire has ever bought a new issue."

"The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that’s going to better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn’t make any sense."

Just as Berkshire's purchase of Barrick Gold shares doesn't mean Buffett is suddenly a gold bug, its deal with Snowflake doesn't mean Buffett suddenly thinks red-hot tech IPOs are his idea of a good investment.

But, even though the money spent has been relatively modest, these two moves do indicate that portfolio managers Todd Combs and Ted Weschler are increasingly taking Berkshire to places Buffett would never go.

As that continues, it should become even clearer to headline writers that "Buffett" is not synonymous with "Berkshire." 

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BERKSHIRE STOCK WATCH

BERKSHIRE'S TOP STOCK HOLDINGS - Sept 11, 2020

Berkshire's top stock holdings by market value, based on today's closing prices.

Holdings are as of June 30, 2020 as reported in Berkshire Hathaway’s 13F filing on August 14, 2020 and other filings, except for Bank of America, which is as of August 4, 2020.

The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.

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-- Alex Crippen, Editor, Warren Buffett Watch