Why Warren Buffet Did Not Invest In Theranos Before They Were Exposed?
Here’s what we can learn from Warren Buffet
“Never invest in a business you cannot understand. Be fearful when others are greedy.”
When the hype of Theranos was wild and before it was caught with all the scandalous stuff, everyone was hoarding their stocks except for Warren Buffet.
Apparently, just like the era of Enron and Dotcom, he wasn’t on board the hype train of Theranos.
In 2016, when Theranos is slowly getting exposed to the public, Warren Buffet revealed an answer on what made him hold his hand on investing in the star-studded company when everyone else was praising Holmes’s genius.
A journalist asked him about the importance of diversity in the leadership of board members of a company, and whether that must change in order to achieve more.
And he said: “No.”
These were his explanations:
“We are looking for people who are business-savy, shareholder-oriented, and have a special interest in Berkshire. And we’ve found people like that. And as a result, I think we’ve got the best board that we could have.”
And then, he gave an example of why he stood by his decision when he runs Berkshire and when choosing leaders to come to the board:
“I get called by consulting firms who’ve been told to get candidates for directors for other companies. And by the questions they ask, it’s clear they’ve got something other than the three questions we ask. They really want somebody whose name will reflect credit on the institution, which means a big name.
“You know, one organization recently, the one that did the blood samples with small pricks, they’ve got some very big names on their board. Theranos. I mean, the names are great, but we’re not interested in people that want to be on the board because they want to make two or three hundred thousand dollars a year for 10 percent of their time. And we’re not interested in the ones for whom it’s a prestige item and who want to go and check boxes, or that sort of thing.”
Warren Buffet is good at reading financial statements, and when Theranos was not caught yet, there may be a chance that they too forge their papers.
But no matter how good a financial statement is, there is another thing that he considered before getting a green light to invest.
Perhaps Warren Buffett had other questions in mind when investing in a company, but in Theranos’s case, he was sceptical of its leaders. And that was the reason he didn’t invest his money in the scandalous company.
Different areas require different expertise
Elizabeth Holmes hired very important people in the defences of the country, especially since most of them held titles of secretaries of the UN. I’m certain that they are good at what they do.
However, perhaps when it comes to business, it’d be a whole new different thing.
She sunk her own ship the moment she decided to be unethical to her employees and to the world.
The way she covered her business up and made it look grand to fool everyone was by having strong connections with the board members. Most of the board members were people of political power and not exactly business people.
One former board member, Avie Tevanian, did raise his doubts about Theranos and how Elizabeth was running the company. However, after he gave too many questions to her, she was cornered in a way.
And then she fired him.
It wasn’t just the board she fired, she managed to clear out anyone who questioned her. There was even an employee who committed suicide for fear that she’ll go after him if he uncovered the truth. How she managed to keep the other board members in the dark about the faulty products is still unsure.
But one thing is for sure, the high names still didn’t sway Warren Buffet to invest in them.
Investing in what creates value
There’s a reason why Warren Buffet despises Bitcoin while people like Elon Musk love it.
Yes, Bitcoin does have value. I think at this point, we all know that it does as the price of Bitcoin is quite high now. If the price skyrockets, you get a lot of profit.
However, as an investor, Warren Buffet looks for something that can create value for everyone. Shareholders, stakeholders, employees, customers, you name it.
Financial statements and annual reports are still important.
In March of 2008, the CEO of Lehman Brothers called Warren Buffet asking for money.
However, after Warren Buffet checked their annual reports, he was sceptical about the company and decided not to give them their requested finances. And that saved his cash as well as the company fell apart in late 2008.
That is one way to assess a company based on its reports.
However, in some cases, their financial reports aren’t enough to make a decision. If it were, he’d probably go invest in Theranos already.
You may call Warren Buffet a Boomer since he may not be tech-savvy and does not understand how electronics work. But he’s sitting in a heap of cash from the money he invested in companies, so what can I say?
“Be fearful when others are greedy, and greedy when others are fearful.”
Theranos was in a hype back then, and that already brought up some greedy people to do their own ‘pump and dump’ scheme.
Obscuring the public with big names may have worked, but as we can see, her schemes didn’t last long. In the end, there was a whistleblower who finally took Elizabeth down.
Which philosophy did Warren Buffet pick that stopped him from investing in Theranos, I can’t be too sure. But one thing is for sure, he’s never someone who boards the hype train and looks beyond the financial statement to make a good investment.
