Warren Buffett Knew Google Was a Smart Investment. Berkshire Waited 8 Years to Buy.

Berkshire Hathaway bougt some 17.8 million shares of Alphabet voting stock in the third quarter. (TOBIAS SCHWARZ/AFP/ Getty Images)

Key Points

• Berkshire Hathaway acquired 17.8 million shares of Alphabet’s voting stock (GOOGL) in the third quarter, now valued at approximately $5 billion.
• Alphabet shares increased by 4.7% to $289 on Monday following the disclosure of Berkshire’s purchase.
• The Alphabet stock acquisition was likely driven by investment managers Todd Combs or Ted Weschler, who manage smaller portions of Berkshire’s portfolio.

Warren Buffett and Charlie Munger recognized the power and profitability of Alphabet’s search platform back in 2017 and regretted then that Berkshire Hathaway hadn’t bought the stock.

More than eight years later, Berkshire finally bought Alphabet’s voting stock (GOOGL)—some 17.8 million shares now worth about $5 billion. The third-quarter purchase was disclosed late Friday in Berkshire’s 13-F filing.

If Berkshire had bought the stock at the time of its annual meeting in May 2017, when CEO Buffett and longtime Vice Chairman Munger praised Google, it would have paid about $45 a share.

Two years later, at the 2019 annual meeting, Buffett and Munger again lamented that Berkshire had missed on Google. The trading price then: around $60 a share.

In early trading on Monday, Alphabet shares were up 4.7% to $289 on news of Berkshire’s buy.

While many investors attribute any Berkshire equity purchase to Buffett, who runs about 90% of Berkshire’s $300 billion-plus portfolio, the Alphabet purchase may have been made by investment managers Todd Combs or Ted Weschler, who together run about 10% of the portfolio.

“It seems likely that Todd Combs and/or Ted Weschler would have been the driving force behind this new purchase,” wrote Bill Stone, chief investment officer at Glenview Trust, in a client note Monday.

Why Combs or Weschler? Their holdings tend to be $4 billion or less while Buffett usually makes larger buys such as Occidental Petroleum ($11 billion) or Chubb ($9 billion). Buffett also might not want to make any notable purchases ahead of his retirement as CEO at year’s end.

Berkshire doesn’t disclose who is responsible for which equity holdings. Combs and Weschler typically invest independently.

At the 2017 annual meeting, Buffett talked about Alphabet’s Google business in relation to Geico, Berkshire’s auto insurer: “We were their customer very early on with Geico—these figures are out of date, but as I remember, we were paying $10 or $11 a click. Any time you are paying somebody 10 or 11 bucks to punch a little thing, where you have no costs at all, that’s a good business, unless someone will take it away from you.”

Buffett added: “The guys that designed the Google prospectus, they came to see me—they modeled it a little bit after Berkshire’s owner manual. I had plenty of ways to ask questions to educate myself. I blew it.”

Berkshire, Munger pointed, had missed out on a smart stock buy before.

“We blew Walmart, too,” Munger said. “It was a total cinch. We were smart enough to figure that out and didn’t. Our worst mistakes have been mistakes of omission.”

Buffett and Munger felt the same way when they revisited the topic at Berkshire’s 2019 annual meeting.

Alphabet stock, which went public in 2004 at about $2 a share, is now up sixfold since 2017. That shows that powerful franchises like Alphabet can keep compounding year after year and build value for shareholders.

Berkshire’s purchase looks good, given that Alphabet’s price averaged about $200 in the third quarter, although the range was from $175 to $255.

It’s notable that Berkshire bought the Alphabet voting shares (GOOGL) which trade at a slight discount to the nonvoting stock (GOOG).

Write to Andrew Bary at andrew.bary@barrons.com