Mark Zuckerberg Should Heed This Warren Buffett Wisdom

Warren Buffett is full of wisdom and Mark Zuckerberg of Facebook would do well to listen to Buffett advice from nearly two decades ago.

Source: The Motley Fool

The wise words When discussing new investments made by Berkshire Hathawayin his 1996 letter to shareholders, Buffett spoke to how he and longtime lieutenant Charlie Munger sought businesses described as "The Inevitables," such asCoca-Cola and Gillette, which have an entrenched competitive advantage allowing them to "dominate their fields worldwide for an investment lifetime."

He provided a point of clarification, noting that "you can, of course, pay too much for even the best of businesses," reminding investors even the best companies make for bad investments if the price paid relative to its value is too high.

But he noted there was "a far more serious problem," than overpaying for a company, and one has to wonder if Facebook offers a prime example. Buffett said:

Source:Source: Flickr / Spencer E Holtaway

Neglecting a wonderful business?While Facebook hasn't neglected its wonderful base business entirely, investors are still scratching their heads about what appears to be a mind-numbingly dumb acquisition of messaging service WhatsApp by Facebook for $19 billion in February.

As fellow Fool Evan Niu, a senior technology specialist for, noted in an October article describing the acquisition:

Evan also reminded us that since the deal was structured in such a way that just $4 billion was paid in cash and the theremainder in Facebook shares and restricted stock units,the purchase price has actually ballooned to nearly $22 billion. Meaning Facebook has paid $22 billion for a business that has lost it $232 million in six months.

With that in mind, it would be difficult to suggest WhatsApp as anything but an acquisition that was "so-so or worse," and one has to think the capital could've been deployed in a better way.

Source: Flickr / Maria Elena

Facebook was ranked dead-last with LinkedInin user satisfaction among social media companies, according to the latest American Customer Satisfaction Index survey. Facebook could have used the resources put toward WhatsApp to significantly improve user experience.

Also consider Twitter is currently valued at $23 billion, meaning for just $1 billion more, Facebook could've created the biggest social media magnate the world had ever seen. Of course, this is likely a pipe dream considering Twitter turned down acquisition efforts by Zuckerberg twice in its early years, but it does reveal the magnitude of the cost of WhatsApp.

Again, it bears repeating: Facebook has now paid $22 billionfor a business with $23 million in sales over the last 12 months.

A final thought Buffett concluded his 1996 remarks by noting that two of "The Inevitables" made mistakes in years prior as Coke was "growing shrimp" and Gillette was "exploring for oil" and:

While the WhatsApp acquisition wasn't exactly akin to Coke's growing shrimp,one has to wonder if Facebook'sloss of focus is drifting too far.

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Patrick Morris owns shares of Berkshire Hathaway, Coca-Cola, and Twitter. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Facebook, LinkedIn, and Twitter. The Motley Fool owns shares of Berkshire Hathaway, Facebook, LinkedIn, and Twitter and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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