People pay attention when Warren Buffett invests – for good reason. Over the years, Berkshire Hathaway has generated enormous profits for Buffet, his investors, and those who track his investment in their own portfolio. Omaha’s Oracle is so famous for his market power that a Google search for his name will return a number of articles posted about why he should (or shouldn’t) follow his investment strategy. ..
Warren Buffett makes it easy to understand the appeal of investing in his footsteps, so to speak. But what should individual investors think about where big companies are investing, not hedge funds or institutional investors?
- 1 Amazon Goes Net-Zero
- 2 Microsoft invests in cyber security
- 3 Big fish and small fries
- 4 Drive difference
- 5 Deeper pockets and longer time range
- 6 Ripples of the market
- 7 You need to invest in Microsoft etc …
- 7.1 AlsoRead
- 7.2 Powell Changes His Tune And Markets Don’t Like His 80s Music
- 7.3 How Forrest Gump’s Mama Would Advise Retirement Planning & Why You Should Listen
- 7.4 With Divestitures On The Rise, Dealmakers Adjust To A New Reality
- 7.5 A Look Beneath The Hood
- 7.6 Charlie Sheen Sues IRS To Cut 2 ½ Men Size Tax Bill Down To Size
- 7.7 The Red Curtain – China Cuts Itself Off From The World
Amazon Goes Net-Zero
First, let’s take a look at a particularly extravagant example of venture capital in action.
Amazon has adopted a new mission to reach zero net carbon emissions by 2040 as part of its plans to achieve global (or at least online retail) dominance. My hands.
That’s why Amazon’s Sustainability Division launched a $ 2 billion venture capital program in June 2020. Fully funded by Amazon’s own balance sheet, the Climate Pledge Fund wants to bring together a broad portfolio of technology-based startups that are trying to disrupt climate-friendly innovation.
So far, Amazon has 11 companies under its umbrella. Online giants may also place purchase orders, such as Rivian Automotive, an electric delivery vehicle manufacturer. At other companies like Zero Avia and Infiniium, which seek to decarbonize the aviation industry, mega-investors have handed over R & D funding.
Not surprisingly, one area where Amazon is particularly excited is investing in CCM Machinery. The company recently developed an automatic packing machine that reduces the volume of boxes by nearly a quarter. As a result, Amazon expects to reduce the use of plastic packaging pillows by a whopping $ 1 billion by 2023.
Microsoft invests in cyber security
Let’s switch gears and see a completely different corporate investment strategy.
On October 28, Microsoft Brad Smith’s President and Vice Chairman stepped into the company’s blog with an important message. The United States is facing a crisis in cybersecurity skills. For every two cybersecurity positions filled, one remains empty. In addition, one-twentieth of open employment opportunities are in the cybersecurity space.
To address this issue, Microsoft has announced that it will invest millions of dollars and considerable educational resources in community colleges, grants, and scholarships to address the shortfall. Through that effort, Microsoft hopes to hire 250,000 students (half of the workforce required) by 2025.
The company’s investments include:
- Scholarships and financial assistance for 25,000 students, including funding for 10,000 low-income students and military veterans
- Cyber security training for teachers from 150 community colleges nationwide
- Free online cybersecurity curriculum for use by community colleges in courses
Recruitment aside, Microsoft also plans to invest a whopping $ 20 billion in cybersecurity over the next five years. Of these funds, $ 150 million has been allocated to help federal, state, and local governments strengthen their cybersecurity networks.
Big fish and small fries
If you’re used to using large investors to find the best investments, it may seem easy to rival the two largest companies on the planet. But when it comes to large corporate investments, the calculations aren’t always that simple.
One of the problems with looking at a company as an investment model is that it often has different motivations than other investors.
For example, most small retail investors aim to build a retirement portfolio and generate some cash on the side. Institutional investors, on the other hand, want the greatest profits and the wisest moves to improve profitability.
However, companies often invest for reasons other than profitability.
Use Amazon’s Climate Pledge Fund. In an interview about the fund’s goals, the fund’s head, Matt Peterson, said: It shows that it is a verification … but it is not the main focus of the fund in relation to broader strategic goals. ”
In other words, the company wants to make a difference in a niche, long-term profitable way, not necessarily immediate revenue. At the same time, Amazon can foster innovation while avoiding the responsibility (and cost) of developing new technologies.
But for Brad Smith, Microsoft’s president and vice chairman, the calculations are a little different. Profit is part of the equation, but the company also aims to deliberately influence large-scale social changes. After all, not all cybersecurity professionals funded by the company work for Microsoft, but that doesn’t mean that the company doesn’t realize the value of filling the void elsewhere.
Smith said at the virtual event: “Looking into the future, we need to be aware that we are facing a crisis in our cybersecurity skills as a country. We cannot protect our country unless we carry out the open cybersecurity work that exists today. The best way to do this is to mobilize national community colleges. ”
Deeper pockets and longer time range
Another difference between companies and individual investors is the level of risk that large companies can adopt. Large pockets carry great responsibility. And it has the ability to absorb losses if the investment deteriorates or if it takes years to achieve returns.
For example, few individual investors have the money, time, and knowledge to educate more than 250,000 cybersecurity students and faculty at 150 community colleges. And we don’t have $ 2 billion to devote to innovation to prevent climate change. But companies like Amazon and Microsoft do-not to mention the ability to wait for returns over an expanded time range.
See Peterson’s description of Amazon’s investment strategy. We’re trying to look everywhere to see where our needs are and where the needs of other companies are … In the period of 2040, we cannot afford to look one or two years ahead. You need to think in the long run. ”
Peterson also said that Amazon is ready to invest in companies at various stages of innovation and growth, “you can invest $ 1 million, or more than $ 100 million in companies,” to help companies reach their goals. I am.
Ripples of the market
Another major difference between corporate and personal investment is the impact of money on the market. For retail investors, buying $ 50 or $ 5,000 worth of stock a day is not a big deal. But when a large investor enters, it acts as a signaling mechanism, revealing the company’s intent and focus and showing investors where to put their money.
This effect is similar to how institutional investors influence the market. Banks, hedge funds, investment companies and other institutions dominate the trading activity of a particular day, so the price goes up when you buy a stock. The higher the price, the more investors feel they should buy, which can lead to long-term price increases.
But if institutional investors sell out, it shows a lack of trust in the company-and when they throw away their stock, the rest of the market may rush to get out of their position as soon as possible. not. The same can happen when a corporate investor drops a security.
You need to invest in Microsoft etc …