Berkshire Hathaway Chairman and CEO Warren Buffett explains why he passed on Uber's initial public offering.
The ride-sharing company's IPO is one of the most anticipated ones of 2019 and follows that of rival company Lyft. Shares of Lyft skyrocketed in their first day of trading, but quickly lost steam. Lyft is down 20% since closing at $78.29 on its first day of trading.
But while IPOs of disruptive companies like Uber and Lyft are widely followed by investors and noninvestors alike, Buffett says you need a good reason to buy into them, just like with any other company. "Whenever you buy a stock … you should be able to take out a one-page sheet of paper and say: 'I am buying the General Motors company at $56 billion because.' If you can't write that out, then you ought to go onto something else," Buffett said. "If you're buying groceries, buying anything else, you can answer that question.
Investors are often buying into an IPO because of the hype involved with them and because they want to catch up with others getting rich and that's not a sound basis for an investment, Buffett said.
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