According to Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) fourth-quarter 2018 13F filing with the Securities and Exchange Commission, the conglomerate made a small investment (small compared to the overall portfolio) in Brazilian payment processor StoneCo Ltd. (STNE, Financial) toward the end of last year.
According to its first-quarter 2019 filing, the conglomerate owned 14.2 million shares of this company, accounting for 0.29% of the overall portfolio and worth around $582 million.
Berkshire's South American investment
As I reported when I first covered this position at the end of March, it appears Berkshire investment manager Todd Combs is behind the deal as he has also been associated with the firm's substantial investment in India's Paytm, the largest mobile payment service in the country.
At the time of my last article on the subject, I also noted StoneCo claims to have 5.5% of the electronic payments market in Brazil, and is well on its way to becoming the country's largest payment processor, a move which could ultimately see it become the next PayPal (PYPL).
Even though some analysts expressed surprise that Warren Buffett (Trades, Portfolio) might be interested in Brazil when the position was first revealed, he has talked about investing in the region before.
At the 2006 annual meeting, one shareholder, who was studying in Kansas at the time, but was originally from Brazil, asked for Buffett's opinion on the South American economy and whether or not he would be interested in investing in the region.
Buffett started his answer by explaining that the biggest problem Berkshire faces is its size. He said the conglomerate would have to make an investment worth several hundred million dollars to justify the time and effort spent, which "narrows the field in terms of countries or in terms of businesses within those countries."
But this doesn't mean he isn't prepared to pounce when an opportunity presents itself. At the beginning of the decade, he made a substantial investment in PetroChina (PTR), investing around $400 million in the company, which was worth "a couple of billion" at the time of the 2006 meeting.
Commenting on this investment, Buffett said, "We weren't afraid to go into China," but he wanted to be "paid more for going into China" because he did not "know the game as well there." He went on to say he would be looking for the same kind of risk-reward profile investing in Brazil.
The Oracle of Omaha went on to add:
"I mean, we — a great beer company down there that a friend of mine ran, and, you know, we should have been in that. We knew he was a great manager, and he was going to do a great job with it.
So, Brazil would not be off limits at all, but we'd have to be able to get a lot of money into a business we understood at an attractive price. We would want it to be cheaper than if it were in the United States. We wouldn't understand the tax laws as well, the nuances of governance, a whole bunch of things. But after allowing for that, at a price, we would do it.
We're unlikely to put a lot of money into — Brazil is a big country, but we're unlikely to put a lot of money into really small economies because we can't get enough money into them."
It seems the situation has changed since then. The Brazilian economy has continued to grow, and there's now at least one opportunity Berkshire seems happy to invest in, which is both big enough and has the right risk-reward profile to compensate for the additional risk that comes with the investment.
Disclosure: The author owns shares of Berkshire Hathaway.
Read more here:
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