Is Warren Being Very Un-Buffett?
Why so much shock? For a long, long time, Buffett has very vocally steered clear of tech stocks, saying that he simply doesn't understand them. But during his big reveal of the IBM investment on CNBC, Buffett laid out at least three reasons why the investment shouldn't be a head-scratcher after all.
- Great business. If there's something that Buffett loves, it's a company that's sticky -- that is, its customers pay it for goods or services over, and over, and over again. The classic example is razor blades, which consumers need to keep replacing as they wear out. Berkshire currently owns a 2.8% stake in Procter & Gamble (NYS: PG) , and that stems from P&G's takeover of Gillette, which Berkshire had a major stake in. Of IBM, Buffett said, "I just came away with a different view of the position that IBM holds within IT departments and why they hold it and the stickiness."
- Management. Without a micromanager bone in his body, Buffett is a stickler for good management. In Buffett's view, IBM's management has been particularly effective, telling shareholders what they're going to do and then -- surprise! -- doing it.
- Reverence for shareholders. Unfortunately, it's frightfully easy to track down companies that don't treat their shareholders right. They dilute the share count, misallocate capital, and hand executives huge pay packages for doing it. Not so with IBM, which Buffett believes makes sure to treat shareholders right.
There may be even more behind the fact that Buffett was suddenly ready to buy IBM. For one, in a lot of ways, we could say that IBM isn't nearly as much of a true tech company as it used to be.
Source: Company filings.
The services focus of IBM makes it in many ways more similar to a consultant like Accenture than a more software-focused business like Oracle (NAS: ORCL) . In that way, the business is more reliant on the expertise of its people and the strength of its brand than the longevity of some specific technology.
In addition, Buffett has been bringing new blood into the Berkshire investing circle. Peninsula Capital Advisors' Ted Weschler was recently hired, but it was over a year ago that Berkshire announced Todd Combs would be stepping into an investing role. During the third quarter, a small position in another big tech name, Intel (NAS: INTC) , was added to the Berkshire portfolio. That was likely the work of Combs.
In his interview with CNBC, Buffett said that he's long had his eye on IBM, but perhaps his fresh perspective on IBM has something to do with the new investor at Berkshire.
But... why you shouldn't care about the IBM buy
It can be tempting to assume that because Buffett invested in something, it's a great idea for you to invest in it. Often, that's not the case.
In some situations, Buffett's investment is in a specific security that you can't also invest in, as was the case with preferred shares of GE (NYS: GE) and Bank of America (NYS: BAC) . In all cases though, you may be able to find out what Buffett has done, but you won't get a glimpse into what he's doing or going to do. IBM is a perfect example of that -- Buffett had been buying since March and got a special pass not to tip his position and report it. By the time we found out about it, Buffett was all but done buying.
In other words, if your thought is to simply mirror Buffett's positions, don't be surprised if you end up with very un-Buffett returns. You'd be far better off not worrying about buying individual Buffett buys and simply buying a bunch of Berkshire stock -- which, by the way, is a great buy right now.
What to do instead
Even if it were worthwhile to copy Buffett's buys directly, I would still recommend that Buffett fans keep that old proverb in mind: "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."
The SEC mandate that investment managers with more than $100 million under management disclose their holdings ensures that Buffett followers will get some fish from time to time. But in his letters to Berkshire Hathaway shareholders, Buffett has been making it a point to teach readers to fish for themselves for decades.
In other words, worry less about what Buffett is buying specifically, and focus more on what you can learn from the Oracle of Omaha to inform your own investment decisions.
One thing you might learn? Buffett loves dividends. All of his top-10 positions are dividend-paying stocks. Which means you may well find some very Buffett-esque ideas in the Motley Fool's special report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." Click here to claim your free copy.
At the time this article was published The Motley Fool owns shares of Bank of America, IBM, Berkshire Hathaway, Oracle, and Intel. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Accenture, Procter & Gamble, Intel, and Berkshire Hathaway. Motley Fool newsletter services have also recommended creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway, Bank of America, and Intel, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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