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Chamath Palihapitiya was dubbed the “next Warren Buffett” after a series of successful bets in 2019 and 2020.Palihapitiya even compared his returns to Buffett’s Berkshire Hathaway in his annual letters.But most of Palihapitiya’s investments soured as rates soared, denting his image as the next Buffett.
Social Capital founder Chamath Palihapitiya rode a massive wave of investment success during the low-interest rate era of the past few years, leading some to call him the next Warren Buffett.
Then interest rates spiked.
Palihapitiya’s winning streak was both impressive and unique in that he helped popularize the SPAC process to bring exciting technology companies public, including Virgin Galactic, SoFi, and Opendoor, among others. The dealmaking prowess of Palihapitiya sparked comparisons that his Social Capital investment vehicle was essentially a baby Berkshire Hathaway.
“I think he’s the new Buffett. He’s not there in dollar terms yet, but he seems right now to have figured out a lot of things before other people, and he’s executed very well,” Ritholtz Wealth Management CEO Josh Brown said in January 2021.
Even Palihapitiya himself, who has called Buffett an inspiration, compared his investment returns to the early returns of Berkshire Hathaway in his annual shareholder letters.
At the end of Social Capital’s 2018, 2019, and 2020 shareholder letters, a chart compared the early year returns of Social Capital to that of Berkshire Hathaway. And Social Capital’s reported gains trounced those of Buffett’s conglomerate.
Social Capital
But after a year of aggressive interest rate hikes from the Federal Reserve, many of Palihapitiya’s investments have soured considerably, dimming the view that the upstart investor is the successor to the Oracle of Omaha.
Palihapitiya addressed the destruction in value seen across technology companies in Social Capital’s 2022 investment letter.
“It was clear since the beginning of 2022 that technology, as a whole, was about to go through a correction. But the consequences and extent of the drawdown was a surprise to most of us. The amount of absolute value destruction, not just in companies, but entire sectors including crypto, SaaS, SPACs, and biotech was alarming. This has created a wave of destruction with many unintended consequences,” Palihapitiya said.
Nearly all of the companies that Palihapitiya brought public and invested in have plunged in value, some by as much as 95% from their peaks.
And yet amid all of the destruction seen in the speculative tech space sparked by higher interest rates, one investor managed to navigate the volatility just fine: Warren Buffett.
Buffett’s Berkshire Hathaway delivered a positive 3% return for its investors in 2022, which highlighted the storied billionaire’s ability to navigate periods of high uncertainty with relative success.
Buffett’s return last year handily outshined the S&P 500, which fell nearly 20%.
Palihapitiya stopped comparing Social Capital’s returns to Berkshire Hathaway’s in his 2021 letter, so it’s unclear if the returns of the two conglomerates are still comparable after 2022’s destruction in the speculative tech space Palihapitiya knows so well.