BUFFETT’S TECH EVOLUTION
Long resistant to investing in Silicon Valley giants and airlines, he now sees value in those sectors
OMAHA, Neb. — Warren Buffett is still finding new places to invest decades after he started, even though his basic approach of finding businesses selling for less than they are worth hasn’t changed much.
Buffett resisted investing in tech companies for years because he didn’t think he could pick which ones would be enduring winners, but now his Berkshire Hathaway conglomerate is a major Apple shareholder because he views Apple as a consumer products company with loyal customers.
The billionaire used to joke that airlines were such a bad investment that someone should have shot down the Wright brothers. Today, Berkshire holds investments in several major airlines.
Berkshire investors have generally profited as Buffett found new ways to put the company’s money to work over the years, although he has made mistakes along the way.
The Omaha, Nebraska-based company updated its stock holdings in a quarterly regulatory filing Tuesday. It showed Berkshire added to its stakes in Apple and Israeli drugmaker Teva Pharmaceuticals in the second quarter.
Berkshire held nearly 252 million Apple shares at the end of June, up from 239.57 million in March.
The Teva investment was just disclosed earlier this year and has grown to 43.2 million shares from 40.5 million in the first quarter.
Berkshire had said Monday that it reduced some of its investments in airline and banking companies, such as American Airlines and U.S. Bancorp, because it seeks to own no more than 10 percent of any firm and those companies have been repurchasing stock.
Berkshire said those decisions to reduce some of its holdings to under 10 percent don’t reflect how it feels about those companies.
The biggest change Berkshire made to its stock portfolio this year has been adding to its Apple holdings. Some of the smaller changes that get disclosed, such as the first stake in Teva Pharmaceuticals that Berkshire bought last year, might be the work of the company’s two other money managers.
“The fact that he’s changing is a good thing,” said George Morgan, a finance professor at the University of Nebraska at Omaha and a former investment adviser.
Buffett was criticized in the 1990s for missing out on the boom in technology stocks, but the 87-year-old’s caution proved sensible a few years later then the tech bubble burst.
The way Buffett explains it, he keeps three boxes on his desk: in, out and too hard. That last box is where tech companies had always lived until Buffett invested in IBM stock in 2011.
“Even with hindsight, it’s a little hard to figure out, you know, who was going to make all the money,” Buffett said at the 2007 annual meeting. “There’s just games that are too tough.”
Buffett says now that he should have recognized Google’s potential as an investment because Berkshire’s Geico insurance company was an early customer of the search engine and selling ads is a business he understands. But Berkshire still hasn’t invested in Google because the company sells at a premium now, and Buffett tries to find investments that are selling for less than they are worth.
It may seem easy to look back and conclude that Berkshire should have invested heavily in Google or Amazon a decade ago, but even if he had, who knows how many bad picks might Buffett have made in the sector. Buffett said at this spring’s annual meeting that he was wrong about IBM and sold it for little gain about six years after he started buying it.
Buffett has continued buying Apple stock in the first half of this year, and Berkshire said in its earnings report that it held shares worth nearly $50 billion in the iPhone maker at the end of June.
Andy Kilpatrick, a stockbroker-author who wrote “Of Permanent Value: The Story of Warren Buffett,” said Buffett pays attention to changes in business and makes changes to his investing approach, as needed.
“I think it’s just evolution of his thinking,” Kilpatrick said.
Edward Jones analyst Jim Shanahan said the changes Buffett has made in recent years could reflect the growing influence of the two investment managers he hired or the two deputies who are in line to eventually replace him as Berkshire’s CEO.
“This might signal what sort of things might come,” Shanahan said. But it’s hard to know if that’s the case because Berkshire doesn’t spell out who makes each investment decision.
Berkshire’s stock portfolio doesn’t contribute nearly as much to the company’s earnings as the businesses Berkshire owns, such as Geico, BNSF railroad and its Berkshire Hathaway Energy utility unit.
Berkshire’s insurance and utility businesses typically account for more than half of the company’s net income. Altogether Berkshire owns more than 90 companies, including clothing, furniture, candy, private jet and jewelry firms.