Marc Andreessen and Warren Buffett are two of the worlds' greatest gamblers. Calculating odds, predicting outcomes and placing bets, hoping for a return. If you've ever been to a casino and sat down at the blackjack table, you have played a similar game as these titans of finance.
Marc Andreessen is perhaps the best-known venture capitalist in the world. Venture capitalists invest in earlier stages of businesses, and typically invest in technology as the agent of change. Meanwhile, Warren Buffett is the best-known value investor in the world. Value investors look to invest where they find bargains and can reasonable predict future profits, usually in sustainable stewards of the current economy.
While their approaches differ, their goals are the same. They place bets where they can buy a stake in something that will create more value than it costs to acquire. The primary difference between the two approaches is time horizon - of when they invest and how they look to exit their investment. Venture capitalists invest early and bet that Revolution and disruption will win, while value investors bet that over the long run, Evolution will run its course and the market leaders of today will evolve into tomorrow.
A War over the horizon
The different perspectives over time horizon lead to distinct public differences between the two approaches. Lately, there has been a lot of heat in the press of a war between Marc Andreessen and Warren Buffett's way of life. Let's look at the story from behind the curtains.
In reference to Warren Buffett, Andreessen recently said: "The historical track record of old white men crapping on new technology they don't understand is at, I think, 100%,"
If the future is based on technology and Warren Buffett doesn't get technology, is that a prophecy of doom for the Oracle of Omaha? Or will Warren Buffett's Midwestern sensibilities stand the test of time? That is what Marc Andreessen seems to imply. The stakes at play are tens of billions of dollars in future profits.
Today vs. Tomorrow
Warren Buffett has publicly said he doesn't understanding technology - or did he? His most famous quotes comes from a 1999 Fortune article about why he doesn't invest in "innovation".
"...the relatively limited longevity and defensibility of competitive advantage in tech and the difficulty of identifying the few winners in advance and being able to buy them at reasonable prices."
If you read carefully, he doesn't say that he doesn't understand technology or innovation - rather that he doesn't think the returns are worth the risk. If you look at the historical returns of venture capital as an asset class, he is proven right, as most VCs never turn a profit. Buffett would rather invest in a sure thing that can think nimbly than a new thing with an unclear base of operations.
Bricks and Clicks, the promise of the 90s is upon us
Amazon (NASDAQ:AMZN) won the commerce wars by combining a digital user experience with the most efficient real-world distribution system in the country. Technology is serving as its arbiter of evolution. Yet, despite Amazon's growth, Wal-Mart (NYSE:WMT) continues to grow and is far more profitable. Sometimes a start-up wins, other times an incumbent figures it out.
Once a caterpillar, twice a butterfly: Betting Big on Transformation
Let's look at value for a second by comparing two great companies. The largest technology company in the US is Apple (NASDAQ:AAPL). Apple, while not a start-up, is a disruptive tech company. It trades at a PE Ratio of 12. On the flip side, the venerable Berkshire Hathaway (BRK.A, BRK.B) trades at a PE Ratio of 15. Both are growing revenue at about the same rate, yet it would seem the tech company is actually the value opportunity. Hmm…
On the surface, Andreessen and Buffett seem very different, though in reality, they are scarily similar. They seek the same goals, and their investments converge over the long term. While Warren Buffett has never coded a web browser - he sure has bet big on corporate transformers that are investing in technology to sustain their competitive advantages.
Warren Buffett is actually a MUCH larger investor in innovation than Marc Andreessen, by orders of magnitude.
Sounds outrageous? Well, let's look at some companies in both of their portfolios. While coming from opposite points on the horizon, their investments quickly converge.
Andreessen has bet on Bitcoin and the future of payments, with over $50MM invested in companies like Coinbase and millions more in payment innovators like Dwolla and Boku. Meanwhile, Warren Buffett has invested over $12BN in Wells Fargo (NYSE:WFC), whose CEO has stated publicly that Bitcoin is a big part of its future, and in American Express (NYSE:AXP), who is betting that Big Data and technology are its future.
American Express and Wells Fargo sound an awful lot like what you would expect to hear from a start-up like Coinbase, Dwolla or Boku.
If you dig into their portfolios, there are many more similarities. Andreessen is on the board of HP (NYSE:HPQ), while Buffett is an investor in IBM Corp. (NYSE:IBM). Andreessen invested in retailers, Groupon (NASDAQ:GRPN), Fab and Zulily (NASDAQ:ZU), while Buffett is an investor in the leading retail innovator, Wal-Mart, who boasts a $400MM+ innovation lab.
For some perspective, Berkshire's positions listed above are each individually larger than the entire Andreessen-Horowitz fund family.
Revolution vs. Evolution - Ante up
In the short run, disruption and revolution can topple a market leader. However, in the long run, most industries follow an evolutionary path. Nimble start-ups unseat some established players, and some established players figure it out and crush start-ups.
You can choose to invest early or invest late - ultimately, the winners will be those who invest smart and can transform their industries. The question is, do you want to bet early on revolution in the short run or late on evolution winning in the long run?
Will the next transformative technology come from a start-up or from corporate innovation labs? Who knows - or perhaps it all converges on the same point over the long run. To find out, you could have gone to Omaha and listened to the Oracle at the last annual meeting. However, your best option to finding a place to stay was following Warren Buffett's recommendation of AirBnB, one of Marc Andreessen's top investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I own some of these stocks in small quantities through a position in a Fidelity Growth and Income Fund.