What Mukesh Ambani overtaking Buffett actually means?
Even 5 years back, it would have been hard to conceive an Indian businessman overtaking Warren Buffett in terms of wealth. But that is what happened on 10 July when Mukesh Ambani overtook Buffett to emerge seventh richest.
Reliance price effect
As on July 10, Mukesh Ambani with his wealth at $70 billion was marginally above Warren Buffett who stood eighth with wealth of $69 billion. As anybody with even a basic idea of equity wealth would tell you, such rankings can be awfully ephemeral. But that is not the point. The 120% rally in RIL in a little over 100 days has helped Ambani with his family owning 50% of RIL. In fact, Reliance Industries has been a 4-bagger since December 2016, when Jio was first launched. But then, there were also some faulty decisions by Buffett.
Bad bets on airline stocks
The last annual report of Berkshire Hathaway showed that the group was reeling under some bad airline bets in the US. The bets were not wrong but the timing was bad. Despite the weak oil prices, airlines took a big hit due to the virtual embargo on international flying leading to huge losses. Eventually, he exited airline stocks but had to book massive losses. But the bigger problem for Buffett arose from his aversion to technology stocks. We shall look at this point in more elaborate detail.
Missing the technology bus
If you look at the top-10 wealth list, 8 are from high end technology. Only Bernard Arnault of LVMH and Warren Buffett can be classified as non-digital names in the list. Among the other 8, two represent Google while 2 represent Microsoft. Then there are the founders of Amazon, Facebook and Oracle. Yes, we have classified Mukesh Ambani also under the digital category as 90% of his wealth in the last 3 years has been generated by digital initiatives. To that extent, Buffett had to pay a huge price for his aversion to technology stocks. He missed some of the greatest US tech stories like Google, Microsoft, Amazon and Facebook. Yes, Buffett’s biggest investment is in Apple, but even in that case, the entry was pretty late even as his bet on IBM was disastrous.
Wealth creation is changing
Price fluctuations are not conclusive but the underlying trend cannot be missed. Most of the wealth is created by new economy ideas executed in emerging markets. Buffett has traditionally been averse to all kinds of technology stocks and to diversify his bets outside the US. What Ambani’s entry into the list proves is that you do not have to necessarily be a technology company. Even having a solid digital strategy and creating a digital-ready business model can be good enough. The savvy Warren Buffett would have surely seen that!
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