Chamath Palihapitiya is a billionaire. He has recently been called “the next Warren Buffett.” Back in the summer, he proclaimed he wanted his firm to be “our generation’s Berkshire Hathaway.”
Based on his investing success, I’m taking any notes possible.
Palihapitiya rose to success as an executive at Facebook in the late 2000s and early 2010s. Now he sits on the board of many successful companies, is a part-owner of the Golden State Warriors, and founded his own venture capital firm, Social Capital.
Investing Strategy
In June of 2020, Palihpaitiya did a virtual discussion touching on a variety of subjects. One of the subjects that was brought up was Bitcoin. During this segment, he alluded to the investing success of picking the clear winner in an industry. That part of the answer is what was most interesting and valuable to me.
His philosophy is an easy one to follow. You should put your money into the winner of an industry and you’ll have success. As they say, to the victor goes the spoils. Or as Palihapitiya said, “The gains typically go to the winner.”
The thought process behind the theory is that most investors pick what they know. They put money into a stock and then forget about it, letting it grow for years or decades. Markets reward being invested long term in the number one player.
If you try to outsmart the market, chances are you won’t win. I personally have tried this several times, without much success. There are reasons why a certain company is the best in its industry. And there’s a reason everyone is investing in this company.
Palihapitiya’s view is to find the company that’s about to win and buy it.
You can spend weeks scouring over every financial statement and drawing up theories of why you believe a company will outperform the top company in the industry. Wouldn’t it be simpler and less stressful, and probably financially more rewarding, to just pick the top company?
If you put money into the fourth best company in the industry, you might be right and it becomes the best performing stock over time. But isn’t it easier staying on top than having to move up several spots?
Remember, the average buyer makes the simple decision to invest in the category winner.
Palihapitiya provided several examples to back up his case. After the Affordable Care Act passed, it made sense to believe health insurance companies would benefit. The insurance stock that performed best since then, UnitedHealth Group, the largest insurance company. When smartphones became popular, Nokia or Motorola could have been options to invest in. Instead, Apple has dominated the industry in the past decade and become the largest company by market cap. Similarly, how Google has evolved into the de facto search engine, its stock has vastly outperformed other search engine companies.
This theory still holds true today. The electric vehicle industry was on fire in 2020. You could spend hours trying to decide which company to invest in. Or you could have saved yourself the trouble and invested in Tesla, which has been on an absolute tear the past year.
The best part of Palihapitiya’s strategy is that it is simple. You buy the winner of a market, and then let it grow over time. His strategy is simple, easy, and financially rewarding — sounds worth trying out to me.
If you aren’t familiar with who he is, I would recommend the 5-minute video I’ve been referencing.
Lastly, if you want some entertainment, check out Palihapitiya’s Twitter page. He’ll occasionally provide a humorous tweet wrapped in revealing how rich and successful he is.