A Tale of Two Billionaires

When we think about the likes of Warren Buffett and Jeff Bezos, our minds immediately go to extreme wealth.

Technochasm billionaires

Source: Shutterstock

But I bet you’d be surprised to learn of the growing divide between these two billionaires…

And it’s all because of the Technochasm” we talk about often here in Smart Money.

The $145 billion stock-market wealth of Amazon (NASDAQ:AMZN) founder Jeff Bezos is now double Warren Buffett’s $77 billion.

Chart comparing Bezos' wealth to Buffett's over time

Source: Charts from InvestorPlace

Just a few years ago, Bezos was a relative pauper compared to Buffett. In 2014, Bezos’ Amazon holdings were worth $25 billion, while Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) holdings were worth three times as much.

Six years later, Buffett’s stock-market wealth has barely budged, while Bezos’ wealth has increased sixfold.

What gives?

Buffett’s continuous stock selling over recent years explains part of the reason why his wealth has been stuck in neutral. If he still owned the same number of shares he owned six years ago, his net worth would be about $20 billion higher than it is today.

On the other hand, Bezos’ wealth would be about $50 billion greater today if he and his former spouse had not divorced last year.

So for the sake of our comparison, we can mostly ignore these divestments by Buffett and Bezos.

The big-picture explanation for the growing wealth divide between Bezos and Buffett is the one word most Smart Money readers are probably sick of hearing…

The Technochasm

The Buffett Myth … Busted

The vast and widening divide between technology-powered industries and everything else is responsible for this divergence.

Amazon’s business has grown at a breakneck pace for the last several years, while most of the largest holdings in the Berkshire Hathaway portfolio have plodded along at low single-digit growth rates.

As you can see in the chart below, Amazon’s revenues have been soaring 28% per year, on average, over the last five years, while none of Berkshire’s top 11 holdings have produced even low double-digit growth.

A chart comparing Amazon's revenue growth to other companies'

Source: Charts from InvestorPlace

As a group, these 11 stocks have managed to eke out average five-year revenue growth of just 2.2% per year. And three of the 11 have produced no revenue growth whatsoever, as their five-year revenues have fallen.

That’s a tough way to produce investment success.

Twenty-five years ago, Morgan Stanley’s U.S. investment strategist, Byron Wien, dismissed the European economy as “a vast open-air museum.” Over recent years, the Berkshire portfolio has taken on a similar aura. It is packed full of iconic, but slow-growing, American companies that produced their glory years long ago.

In the “Financials Wing” of this museum, we find an array of holdings like Wells Fargo (NYSE:WFC), American Express (NYSE:AXP), JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC). As a group, these stocks have been trudging along at 5% annual growth rates.

That’s not a disaster, but it pales alongside the growth rates of leading financial technology — “fintech” — companies like PayPal (NASDAQ:PYPL), Square (NYSE:SQ), Fiserv (NASDAQ:FISV) and PagSeguro Digital (NYSE:PAGS).

Chart comparing the growth rates of fintech leaders and large financial holdings from Berkshire Hathaway

Source: Charts from InvestorPlace

When looking at potential investment through the lens of the Technochasm, it is easy to see whether a company is dynamic and growing … or merely occupying space, hanging around and waiting to die.

The innovators thrive, or at least create the potential to do so. The non-innovators merely exist … until they don’t anymore.

It’s All About the Technochasm

By reputation, Berkshire Hathaway is an outstanding stock — one of the greatest of all time. But reputation doesn’t ring the register. That’s what technological innovation does … or can do.

To be fair, Warren Buffett has experienced years of underperformance before — and they were followed by years of outperformance. That’s because he remains faithful to his market approach, which is that of a value investor.

But for now, by simply looking at his holdings, returns and stock-market wealth, we can say that Warren Buffett is on the wrong side of the Technochasm.

We’re seeing firsthand just how essential technological prowess has become for most companies — and what the Technochasm is doing to both the socioeconomics of our society as well as in the stock market.

It’s benefitting some stocks significantly … and wreaking havoc on those that are slow to adapt.

The Technochasm is gaining strength, and it’s sweeping through the global economy. Find out how to make sure you’re on the right side of it by clicking here.


Eric Fry

P.S. I spent the past year traveling from coast to coast in America, investigating our country’s growing wealth gap. I visited America’s wealthiest ZIP code … one of our nation’s poorest schools (in an area where an estimated 50% of the families are homeless) … and one of most radical, new high-end housing developments. Along the way, thieves smashed the windows of my film crew’s SUV and stole more than $5,000 worth of video equipment.

Still, it was all worth it… Because I’ve found the No. 1 way for any American, with even just a small amount of savings, to close the wealth gap… and potentially make serious money over the next few years. Check out my amazing footage and learn the No. 1 way to radically improve your finances by clicking here.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/06/a-tale-of-two-billionaires-technochasm-buffett-bezos/.

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