Buffett called himself ‘an idiot for not buying’ Amazon shares before.
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This story originally appeared on Business Insider
Warren Buffett on Thursday evening revealed to CNBC that his Berkshire Hathaway conglomerate has taken a stake in Amazon. The legendary investor will hope lightning strikes twice: he made a massive $246 million — an 84% return in five years — on a previous investment in the e-commerce titan.
Buffett called himself “an idiot for not buying” Amazon shares before. He joked there were “no personality changes taking place” as one of Berkshire Hathaway’s investment managers purchased the stock.
The Sage of Omaha shouldn’t be so hard on himself. After the dot-com bubble burst, Berkshire Hathaway made “sensible investments” in junk bonds and loans, growing its holdings six-fold to $8.3 billion, Buffett wrote in his 2002 letter to shareholders. The company amassed 310 million euros worth of Amazon bonds in 2001 and 2002 that were “priced as ‘junk’ credits, though they were anything but,” Buffett said in his 2007 letter to shareholders.
Buffett’s investment was helped by the euro, which strengthened from $0.95 at the time of purchase in 2002 to $1.47 in 2007. Its rise against the dollar meant he received a hefty $253 million when Amazon paid off some of the bonds in 2005 and 2006, and the remainder were valued at $162 million at the end of 2007. His overall gain — realized and unrealized — was $246 million at the end of 2007, representing an 84% return on his investment. Almost half of that stemmed from the falling dollar.
Buffett will be looking for a much bigger payout from his latest Amazon investment, without relying on currency movements. Berkshire Hathaway’s 5.3% stake in Apple alone is worth about $51 billion, and together its investment holdings returned $3.8 billion in dividends last year, according to its latest annual report. Shareholders could gain more insight into Buffett’s thinking when he speaks at the company’s annual shareholder meeting this weekend.