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Chamath joins the Metromile low club

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There are a few famous rules in investing. Don’t use too much leverage. Don’t tell your mates material non-public information. And, perhaps most important of all, if you’re on a hot streak, avoid comparisons to Warren Buffett.

Breaking that final rule has left big hedge fund names a wreck. Remember Eddie Lampert on the front cover of Businessweek in 2004, just before he oversaw the collapse of Sears? Or perhaps Bill Ackman’s infamous “Baby Buffett” Forbes cover 11 years later, which heralded almost half a decade of poor returns for his fund Pershing Square.

We now have another name to add to this list: Chamath Palihapitiya, the Spac pioneer.

Back in February, the former Facebook engineer turned Twitter braggart was everywhere, as his various pre and post merger Spacs — names like Virgin Galactic, Clover Health and Opendoor — hit new, arguably insane, highs day-on-day. Then came the inevitable. The Warren Buffett comparison. Once again in Businessweek.

However, unlike some other wanna-Buffetts, Chamath was only too happy to invite the comparison. From the piece:

Plus, there’s that whole Buffett thing. He fancies growing his empire into a Berkshire Hathaway-esque conglomerate for the 21st century, complete with investor conference calls, an analyst day and its own must-attend annual meeting. All of which, in his vision, will generate enough wealth to shrink the inequality gap in America. It’s pretty grandiose stuff.

“I do want to have a Berkshire-like instrument that is all things, you know, not to sound egotistical, but all things Chamath, all things Social Capital,” he said.

The timing was exquisite. Just five days later on February 17, the IPOX Spac index hit its all-time high, before precipitously falling. It’s down 25 per cent since. Some of his Spacs, such as Virgin Galactic, sit more that 50 per cent below their all time highs.

But the Businessweek article wasn’t the only Buffett comparison. Because, to be Buffett, you don’t just have to believe. You have to emulate.

One of Buffett’s most storied investments is US motor insurer Geico. Having fallen in love with the business back in the 1950s, Berkshire Hathaway eventually got around to taking it private in 1996.

Chamath seemingly had the same bright idea. Invest in an insurer, and bob’s your billionaire uncle. Fortunately, start-up car insurer Metromile was going public via a Spac. So Chamath, alongside other investors including dotcom lottery ticket winner Mark Cuban, stumped up some $160m into its private investment in public equity round (aka the infamous PIPE).

Of course, he also took to the Twittersphere to hammer home the Buffett comparison:

Metromile went public on February 10 at a market capitalisation of $2.3bn. And since, its traded like how you might expect an insurer valued at seven times its 2022 estimated premiums (yes, not profits, premiums) to trade.

Like a dog:

After a 82 per cent drawdown from its post merger price of $18 to a touch over $3, Metromile investors were put out of their misery Monday after it was announced Lemonade, an equally egregiously valued challenger insurer, was taking it private for just $500m, or $200m if you net out its cash pile.

We’re not sure about you. But we can’t remember Buffett losing 80 per cent on Geico in the space of nine months. And then the company being taken private.

However there is another Buffettism that spring to mind here. Something about tides and swimming naked. We’re sure you know the one.

Related Links:
Tech investor Chamath Palihapitiya: ‘I reserve the right to change my mind’ — FT

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