The Curious Case of Berkshire and Technology

Warren Buffet, Chairman and CEO of Berkshire Hathaway Holdings said recently that “I made the wrong decisions” when he passed up the opportunity to invest in Amazon and Google. He has long shunned his knowledge of technology despite having a big stature in the world of investments. Buffet in the 1990s famously said, “I don’t understand technology.” Often known for his self-deprecating humor, the billionaire is fairly grounded in his knowledge when it comes to technology. "All you people piling into dotcom stocks must be much smarter than I am because I just don't get it!”

Buffet’s Berkshire had bought into IBM, Berkshire’s biggest technology-based investment back in 2011. But the bet was far off the mark as the Holdings Company did not make much on their investment. In fact, Berkshire Hathaway announced that it had lost $2 billion on its IBM investment in 2015. That’s 15% of more than $13 billion worth of IBM stock that Berkshire had purchased since 2011. "I thought it would do better in the six years that have elapsed than it has," Buffett said of IBM. As far as 2018 is concerned, Buffet said they had completely backed out of IBM.

It’s Apple that Buffet has now resorted to taking a bite out of. “And Apple, I regard them as being in a quite different business. I think Apple is much more of a consumer-products business with skill at finding opportunities that are difficult for rivals to duplicate,” said Buffet with confidence. He says that Apple has a different kind of business in comparison to IBM. Apple has a much more consumer-products approach. Further, he said that only time can reveal whether his Apple bet will pay off.

Charlie Munger, Vice Chairman of Berkshire Hathaway Holdings chimed in saying that it was a “very good sign” that Buffet jumped onto the Apple bandwagon. Contrary to what Buffet and Munger say, they do understand technology. Their company has been increasing its sector allocation in Information Technology companies since the last decade or so. Moreover, every company that Berkshire excels in investing in are heavy users of the latest technology. Take Coca-Cola, insurance or home manufacturers for instance. These companies are welcoming technology for their products. Although Berkshire doesn’t directly go into all-in companies when it comes to technology, it still has an indirect stake in contributing to the technology of the companies they have funded.