Editor’s note: This article was first published in November 2014; all figures are from then, including Son as Japan’s richest man, SoftBank’s valuation, its stakes, the number of investments, the 45% IRR and the P/E ratios. SoftBank has since sold most of its Alibaba stake, and Sprint has merged into T-Mobile.
Masayoshi Son is the CEO of SoftBank and also the richest man in Japan, but he doesn’t feel as respected as Warren Buffett, because he believes investors don’t value his company as it deserves.
As he told Bloomberg, SoftBank is undervalued as a company: it has a valuation of around 82 billion, while the net value of its stakes in listed companies exceeds 114 billion.
SoftBank has investments in more than 1,300 companies, including Alibaba, Sprint and Yahoo, and is also a potential investor in unlisted companies such as BuzzFeed.
But for some reason investors don’t usually apply the “Buffett premium” to his company. The term obviously refers to Warren Buffett, and to the way investors are willing to pay more for certain companies because they trust they won’t be let down.
For example, shares of Buffett’s Berkshire Hathaway currently trade at 17 times earnings, compared with SoftBank’s price-to-earnings ratio of 14.
A higher P/E doesn’t always mean a company is more expensive; sometimes it means expectations are much higher.
And the truth is that SoftBank has done better than many of Wall Street’s big investment managers, with an IRR of 45%. That’s why Masayoshi Son believes he deserves the same level of respect as Warren Buffett.
So why, in my opinion, isn’t he respected in the same way?
Despite the strong performance the SoftBank CEO has shown, his approach to investing and picking stocks is a far cry from the principles of value investing, and his stock-picking criteria are very different from Buffett’s.
In fact, SoftBank is diversification taken to excess. You shouldn’t put all your eggs in one basket, but splitting them across 1,300 baskets is too much. One of Warren Buffett’s investment principles is to “put your money in a few baskets”.
Not to mention his bets on today’s leading technology companies, which are precisely the kind of company Buffett won’t touch with a barge pole, because he can’t picture where they will be in the future.
SoftBank’s high returns come precisely from its big bets on many tech companies, so if a tech bubble burst, the company would probably lose much of its value.
That’s why investors don’t give him the “Buffett premium”.
Further reading
