No. of Recommendations: 7
Google starting to be noticeable & newest member of the Big 5.
It is indeed a bit of a mystery, in a way.
I tend to agree with the recent comment that the investment in Alphabet is too big to be a subordinate, so it's reasonably likely that it's Greg's (first?) pick, perhaps with a grudging nod from Mr B.
I have been a long term fan, and have made a lot of money on it so far, but the thing that's strange is that the valuation certainly isn't compelling recently.
Alphabet spends variable amounts on various things from year to year so earnings are a bit bumpy, so I have historically looked at price-to-sales as the quickest stable yardstick, bearing in mind the assumption that a slow long term down trend makes sense. In the last decade or so, the P/S ratio has oscillated in the 4.5 to 8.0 range. Always rich in that sense, but historically purchases in the <6 range have done very nicely reasonably quickly.
With the wild growth of capex recently among the MAMA stocks (Meta, Alphabet, Microsoft, Amazon), there is a case to be made that it's a business that is becoming very much more capital intensive, so return on assets can be expected to fall for a while. This tends to pull down the net margin and P/S ratios, as a crude rule of thumb.
So, the mystery is a big purchase now. P/S today is 12.3: ouch, relative to history even for them. If that history is a rough guide but the business economics and the historical valuation range are roughly unchanged, that's a very unlucky entry. If the expected long term trend of lower profits per dollar of revenue comes true, then it's even worse.
Of course, as others noted, they didn't buy at today's price. But still, it hasn't been an obvious timely buy at any 2026 valuation level.
The business is likely to do very well in the long run from here, even if valuations are a bit higher than usual, which might be just fine for Berkshire. "Great business at fair price" works, so "great business at not too painful" price might work too. That being said, I recently closed the last of my position recently (at $381-ish) on the simple reasoning that there is no statistically likely return to be had within a year or two, and other better opportunities might come up. There are some vague reasons to suspect that global equity markets might be a target rich environment at some point in the next 12-18-24 months. Ah, for a golden fish in a barrel.
Jim
