Should Warren Buffett Buy Nasdaq?
NEW YORK ( TheStreet) -- Warren Buffett's Berkshire Hathaway
Buffett, who recently said his investing conglomerate is "the 1-800 number when there's really sort of panic in markets," may be the right buyer to restore confidence in Nasdaq after the exchange suffered through a May 2010 "Flash Crash" and was hamstrung by software glitches in Facebook's
In the financial crisis, Buffett was able to support the banking system with multi-billion dollar preferred stock investments in firms such as Goldman Sachs
If Buffett was interested in acquiring NYSE Euronext until the firm's price rose too high, as CNBC's David Faber reported earlier in 2013, Nasdaq could be a better-sized operator for Berkshire Hathaway. The legendary value investor could look at the exchange as a "moated" brand that is a fixer-upper after glitches such as Facebook's IPO raise the prospect large tech firms will choose to list their shares with competitors.
Nasdaq, given its prominence as the exchange for Silicon Valley bellwethers, could be a way for Berkshire to bolster its investment in the technology sector without veering too far from its expertise. Given strong demand for initial public offerings as stock markets recover from the financial crisis, the exchange would also be a fit with Berkshire's heavy investment in the U.S. economy.
Most importantly, an investment in Nasdaq could be a way to influence renewed stability to the U.S. financial markets. This year, the billionaire investor and his lieutenant Charlie Munger both sharply criticized the high-frequency trading (HFT) that now dominates exchanges such as Nasdaq and is blamed for their recent bouts of instability. If Buffett is of the belief that stock markets need a cleansing, owning an exchange such as Nasdaq could be a way to do so.
In May, Munger said HFT was "basically evil." Buffett, in a separate interview with CNBC, said short-term traders are "not contributing anything to capitalism." Buffett did praise how cheap stock trading has become. "It's a very inexpensive market to operate in," he told CNBC.
Berkshire Hathaway often refuses to meddle in the affairs of its subsidiary investments.; However, Buffett has a track record as a fixer-upper in the financial services industry.
When buying insurer General Re , Buffett said he and Munger spent years unwinding the firm's derivative contracts, in an effort the legendary investor equated to having entered "Hell." In his 2002 annual report, Buffett said "derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."