How to explain Berkshire’s investment in Apple?

  • Lately, Warren Buffett has been investing in tech related companies.
  • Several market participants are confused about what that means.
  • Most likely, the moves are influenced by Ted Weschler and Todd Combs.
  • However, this does not has to mean a shift in investing approach. Most likely, it is a subtle shift in perspective

Photo credit: Fortune Live Media

For those in the investment community, the news that Warren Buffett has been buying Apple stock must have come as a shock. The legendary investor has said many times that he doesn’t like to invest in companies depending on technological development to prosper.

In a recent past, Buffett has broke that rule and made an investment in IBM (IBM). And now, he is investing in Apple (AAPL). The financial community is dazzled and confused. Some analysts have argued that, right now, Apple is a classic value play and Buffett is just playing by the book.

Although I agree that Apple’s valuation is attractive, the truth is its immediate growth perspectives seem mostly depleted. Hence the low earnings multiple attributed by the market. Therefore, I don’t believe Apple is one of Buffett’s legendary cigar butts.

So what’s happening? Is Buffett changing his approach to investments once again?

Those familiar with Berkshire’s (BRK.A) (BRK:B) front-man life story, will remember that Buffett has come a long way from being a value seeker to become an investor in quality businesses. Honestly, I am not seeing him changing much in the coming years.

Therefore, Berkshire’s current tech investments must be, at least partially, the influence of the new guys brought in to help the transition to a post-Buffett era. I expect the new Berkshire’s money managers to help him changing his interpretation on some companies, not to try converting him to a different investment approach.

In IBM, Buffett saw a hardly comprehensible economic moat but that he clearly believes it’s there. Additionally, IBM has developed a corporate culture of periodically reinventing itself. And although many might say that the current IBM iteration is struggling, truth is IBM has a good track record of successfully changing focus between industries. In that sense IBM’s organizational DNA has been a key advantage to the company.

On the other hand, Apple is more than just a tech stock. It is consumer brand with iconic status. And although technological development will still be vital for the company, the truth is Apple doesn’t need to have the most advanced products. It just needs to keep its product and service experiences up-to-date. Apple has become a company that cares for technological development as much as it cares for marketing and business models.

Basically, if there’s any change at all in Buffett’s investment philosophy, it is a subtle one: Buffett is going from investing in great businesses to invest in great organizations.

[PS: Ironically enough, with this investment Berkshire is implicitly saying that IBM and Apple are made from the same organizational fabric.]

[Update 29-05-2018: Time just proved they aren’t]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s