Berkshire's new fintech investments fit into a classic Buffett strategy — bet on an entire industry

Key Points
  • Berkshire Hathaway has invested about $600 million in two emerging markets payments companies — Paytm and StoneCo, according to The Wall Street Journal.
  • While it’s rare for Berkshire to invest in early stage tech, it’s not so rare for the holding company to make bets across a particular industry like airlines or banks. 
  • The firm is now betting on payments. In addition to the fintech companies, Berkshire owns Visa, Mastercard, and American Express. 
  • “Payments are a huge deal worldwide,” Warren Buffett said at this year’s Berkshire shareholder meeting.
Warren Buffett
David A. Grogan | CNBC

At first blush, Berkshire Hathaway's recent early-stage fintech investments may seem out of place. But they do fit with Warren Buffett's longtime strategy of making multiple bets across an entire industry.

Buffett's conglomerate, which typically takes stakes in blue chip American companies, recently invested about $600 million in two fintech companies focused on emerging markets — Paytm and StoneCo, The Wall Street Journal reported Monday. Both investments were led by one of Berkshire's two top money managers, Todd Combs.

While it's rare for Berkshire to invest in tech start-ups, it's not so rare for the holding company to make seemingly competing investments in one industry. Berkshire owns banks Wells Fargo, Bank of America (its largest overall holding) and Goldman Sachs, as well as major stakes in four domestic airlines.

Berkshire's newest industry bet appears to be on payments. In addition to the start-ups revealed this week, Berkshire Hathaway has a significant stake in the three largest U.S. incumbents — Visa, Mastercard and American Express.

Like the U.S. payment giants, Paytm and StoneCo dominate their respective marketplaces. Berkshire took a $300 million stake in August in Paytm, India's largest mobile-payments service that claims to have more users than PayPal, according to the Wall Street Journal. Berkshire bought shares in Brazilian payment processor StoneCo when it went public last week.

'Payments are a huge deal'

Buffett, Berkshire's widely followed chairman and CEO, highlighted strength in the industry at this year's annual shareholder meeting in Omaha.

"Payments are a huge deal worldwide," Buffett said when asked about American Express, according to CNBC's Warren Buffett Archive. "And you've got all kinds of smart people working at various ways to change the payment arrangements."

Berkshire portfolio managers Todd Combs and Ted Weschler made "significant" investments in Visa and Mastercard when the firm already had a bet on American Express. Buffett said the Amex stake didn't preclude him of his portfolio managers from buying others in the industry.

"I could have bought [Visa and Mastercard] as well," Buffett said. "If I had been as smart as Ted or Todd, I would have."

Some of Berkshire's strongest performances last year came from Visa and Mastercard, which gained 24 percent and 30 percent year over year, respectively. American Express meanwhile rose 6 percent during the same time period.

Still, Buffett said American Express has done "a fabulous job," and said he "loves the fact" that they own 17 percent of the firm.

"It's a company that has really done a fantastic job in a very competitive field where lots of people would love to take their customers away from them," Buffett said. "The international growth has accelerated. The small business penetration is terrific. It's really quite a business."

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