2019 is shaping up to be an extremely active year for initial public offerings, or IPOs, with several major tech companies going public. While some large companies have already completed their IPOs, the most anticipated -- Uber's -- is right around the corner. Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett has shown interest in the ridesharing company as an investment before. In fact, Buffett and his team looked into making an investment in Uber in 2018, but it didn't come together. And Berkshire reportedly offered to make a convertible loan to Uber that same year, but was turned down. Despite his interest in the company, and his general aversion to discussing Berkshire's stock investment strategy, Buffett recently made it clear in a CNBC interview that he will not be participating in Uber's IPO, and why it's unlikely that you'll see shares from any IPO in Berkshire's portfolio. Why investors often buy IPOs Buffett tends to avoid IPOs. In fact, he told CNBC that "in 54 years, I don't think Berkshire has ever bought a new issue." In a nutshell, IPOs tend to be driven largely by hype, and there's tremendous incentive to sell the shares and generate high commissions. As Buffett put it, "The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that's going to better than one thousand other things I could buy where there is no similar enthusiasm ... just doesn't make any sense." Now, that's not to say that Uber or any other IPO will end up being a bad investment. Buffett acknowledges that there's money to be made in certain IPOs, but essentially says that there's always a place for his money that will be easier to justify. Buffett is a firm believer that investors should be able to justify any stock purchases they make. He says that most people buy IPOs simply because of the hype, and because they think the stock will go up. And that's not a smart approach. Why investors should choose to buy a stock Here's one of the greatest lessons Buffett has shared over the years, expressed in a new way. Buffett advises investors to think about the reasons they're investing in a company at a certain valuation. As Buffett explained it to CNBC, "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 on to something else." He points out that with virtually every other type of purchase, people can generally do that. However, when it comes to stocks that they're going to put their savings in, they often can't. Should you pass on the Uber IPO? To be perfectly clear, just because Warren Buffett decides to pass on a certain investment opportunity doesn't necessarily mean you should do the same. However, Buffett does give some good advice as to how you should approach it, if you're considering jumping in. In other words, if you can say why you're investing in Uber at the IPO valuation, and your answer goes substantially deeper than hype-based reasons like "because the stock could go up," it could certainly be a good fit for you. The bottom line is that Buffett isn't necessarily telling you not to buy the Uber IPO. He is, however, saying that if you do, you should make sure it's for the right reasons.<doc-sep>Uber is ready to take the plunge into the shareholder scrutiny pool as a public company when it debuts its initial public offering (IPO) with its pricing set for today and its availability to trade on Friday, May 10. However, one investor who won’t take the ridesharing company’s IPO for a ride is market maven and Berkshire Hathaway CEO Warren Buffett. “In 54 years, I don’t think Berkshire has ever bought a new issue,” Buffett told CNBC’s Becky Quick. “The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that’s going to better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn’t make any sense,” he added. “I’m not saying that what we’re buying is going to work out better, but there have to always be better things than one single issue.” Uber’s valuation, which was duly disclosed in a regulatory filing, came in at less than the $120 billion that investment bankers valued the company at last year. Final valuation numbers were more in line with the $76 billion valuation obtained during a round of private fundraising in 2018. The lower value comes after its competitor Lyft and other IPO peers have investors wary of their ability churn a profit as a public company. Pinterest lost $63 million in 2018, which almost seems miniscule next to the over $900 million loss that Lyft revealed prior to debuting its IPO. Uber has been losing more than $800 million a quarter ahead of its IPO offering in mid-May. “We believe that recent price reductions for both Uber and Lyft may be indicative of investor hesitance to invest in highly capital-intensive, deeply unprofitable and untested business models at this late stage of the economic cycle,” PitchBook analyst Asad Hussain said. Uber hopes to come out of the starting gates better than competitor Lyft. After debuting with an opening price of $72, Lyft struggled with analyst downgrades early on in its publicly-traded existence. However, Uber could suffer the same fate as both share similar core business models. “When it comes to Uber, we believe there are still questions over the current car-sharing model, the economics of which are not immediately or obviously attractive for sustainable, long-term investment,” Mark Hargraves, head of Framlington Global Equities, wrote in a note.<doc-sep>
Berkshire Hathaway Chairman and CEO Warren Buffett explained why he passed on Uber's initial public offering and why the investing icon avoids most new stock offerings in general. "In 54 years, I don't think Berkshire has ever bought a new issue," Buffett told CNBC's Becky Quick on Monday. "The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that's going to better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn't make any sense," he added. "I'm not saying that what we're buying is going to work out better, but there have to always be better things than one single issue." Buffett told reporters ahead of Berkshire Hathaway's annual shareholders meeting on Saturday that he "looked" into Uber more than a year ago. Uber is expected to go public later this week. Underwriters set a price range for the company of $44 to $50 per share, valuing it at nearly $84 billion. The ride-sharing company's IPO is one of the most anticipated of 2019 and follows that of rival 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. While IPOs of disruptive companies like Uber and Lyft are widely followed, Buffett said 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. But if you can't answer it on something you're involving your savings in for however many years for, why should you be doing it?" Buffett said 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. Subscribe to CNBC on YouTube.