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Warren Buffett: social networks are 'overpriced'

Warren Buffett has warned that social networks could prove the next Dotcom bubble, suggesting some sites may be 'overpriced' ahead of future stock market flotations.

The comments from the multi-billionaire CEO and founder of Berkshire Hathaway come in the wake of recent valuations that put the worth of Facebook at $85 billion, and micro-blogging site Twitter at $5 billion.

"Most of them will be overpriced," Buffett told business news site Bloomberg. "It's extremely difficult to value social-networking-site companies. Some will be huge winners, which will make up for the rest."

The 80-year-old is known for his outspoken opinions, such as his warning, during a recent trip to South Korea, that the US is headed for a 'plutocracy' - government by the rich, rather than elected politicians.

But as one of the world's most successful investors, with a personal worth of more than $50 billion according to US business magazine Forbes, when Buffett states his opinion, the world tends to lend its ear.

The veteran investor - whose far-sighted investments have earned him the nick-name 'the Oracle of Omaha', has been shy of investing in the technology sector, being one of the first to warn of the Dotcom bubble of the late '90s.

Analyst Tom Foremski of ZDNet echoes Buffett's prediction that social networking could prompt a new high-tech bubble. According to Foremski, Russian banker Yuri Milner, the investor behind multi-billion dollar fund Digital Sky Technologies, has already made a massive profit from behind-the-scenes trading of Facebook shares in what Foremski calls a 'classic pump and dump'.

Milner bewildered observers in 2009 by paying $200 million for a share of Facebook, valuing the company at a total of $10 billion.

Thanks to favourable media coverage, when Goldman Sachs made a major investment in Facebook in January 2011, that valuation had risen to $50 billion. Having amassed a 10 per cent stake in the company, Milner took the opportunity to make an exit - pocketing a profit of $4.2 billion from his two-year investment

A recent sale of stock by co-founder Eduardo Saverin saw Facebook's privately traded share price hit $34 - effectively valuing the company at $85 billion.

How long the upwards spiral can continue is anyone's guess - but it seems that seasoned market watchers like Buffett aren't in the mood for buying...