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[edit]Disclosure - I am a Berkshire Hathaway investor and more intense than average follower of the company and it's top management.[/edit] This is almost cert

by jalopy 10y ago

[edit]Disclosure - I am a Berkshire Hathaway investor and more intense than average follower of the company and it's top management.[/edit] This is almost certainly a bet by Ted Weschler or Todd Combs - Buffett's chief investing lieutenants. Buffett has maintained his aversion to tech as he doesn't "understand"[1] it, and I see nothing to indicate he's changed his mind at this stage in the game. Also - a $1bn investment is relatively small change for Buffett, but fits squarely within the size range of Ted and Todd's reported $8-10b (each) investment warchest. [1]: Not "understanding" doesn't mean he doesn't or couldn't understand the technology aspects; rather, it means he doesn't have the ability to see which of the participants will survive and thrive in 10 years time to justify an investment today. IBM is a notable exception.

mathattack 10y ago
I suspect that IBM fits his understanding because he views it as a services company, rather than a hardware or software company. Services he does understand. I think he also likes that they give most of their cash back to the shareholders. (Which makes them a value play rather than a growth play) I was still surprised by the investment though.
- jalopy 10y ago
  Agree on these points. Also, across the dozens of businesses fully owned by Berkshire Hathaway, he has unique insight into the tech vendors that those businesses rely on. The rumor is that he polled a significant portion of the managers of these businesses which helped to inform his decision that IBM would be around for a long, long time.
  - mathattack 10y ago
    Interesting. The challenge is that tech companies can become obsolete very quickly. I don't think IBM is as sticky as he gives them credit for.
    - dgreensp 10y ago
      This is funny because IBM is the best possible example of a sticky tech company. The company was originally founded in 1911 and made punch-card-operated tabulating machines.
      - mathattack 10y ago
        Indeed, but I don't people are as locked in their services as they used to be. They've been resiliant, but it isn't like the 80s or 90s when a decision to buy IBM was a 20 year commitment. Now the decision to buy IBM is more around software and services. Outsourcing contracts have long lives, but software and implementation less so. This is where the Growth investor looks at something different than the Value investor. The growth investor says, "They're technologically irrelevant. They're still hawking Lotus Notes!" [0] The value investor says, "Their PE is 11, and they're buying back every share in sight." [1] [0] http://www-03.ibm.com/software/products/en/ibmnotes http://www-03.ibm.com/software/products/en/ibmnotes [1] http://www.google.com/finance?cid=18241 http://www.google.com/finance?cid=18241
        ethbro 10y ago
        I'm not overly familiar with IBM Global Services, but from the contact I've had with them in the enterprise world I think you're undervaluing the stickiness substantially. For context, if I'm looking at the right numbers, IBM has ~USD$80B in revenue with ~USD$60B from services? IBM realized a while ago that the actual machines were replaceable, but the expertise needed to do integration on the scale they operate at less so. And given the poor success rate of major upgrade/integration projects, I expect "hire IBM" is still a fairly safe decision at the C/VP level. Whether legacy enterprises* are running mainframe or fail-tolerant distributed infrastructures, most of them are more than happy to throw money at someone to reliably turn the crank and keep them working. Edit Side note: Does Amazon actually not have a services org to build on top of AWS? Seems like they could create one just from IBM layoffs and start helping some of these sorts of customers migrate to AWS. *Excludes the vast majority of companies mentioned on HN
- banku_brougham 10y ago
  IBM is dying, http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ I hope their Apple purchase isn't an indicator of the same.
  - rdtsc 10y ago
    Yeah that guy wrote a book about how IBM is dying a few years ago and ever since then keeps writing blog posts about it. Whether it is dying or not I would not listen to him.
    - banku_brougham 10y ago
      A behemoth like IBM takes a while to die. I've read a bit about IBM. They are toast, the market for mainframes, server racks and expensive enterprise service packages is disappearing.
      - notaharvardmba 10y ago
        Except watson, patents, their financing arm, 99 year contracts with governments globally...
        josh2600 10y ago
        ... Have you ever tried to use Watson for anything? The aspect of dying is a forward looking thought which presumes that growth has ceased within the organization and the best they can do is to maintain their current state. I think that's a fairly accurate depiction of IBM's business although the recent performance notes I've seen of the Power chipset with PG_SQL are pretty encouraging.
        ReedJessen 10y ago
        I estimate about 60% of IBMs patents are invalid after the recent Alice v. CLS Bank decision. Just no one has call them out on it yet.
      - deleted 10y ago
- deleted 10y ago
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nashashmi 10y ago
> he doesn't "understand"[1] it This! is exactly what made tech such an easy investment growth. Mainstream (2008) investors use three things to size a company: Industry and Market, Challenges, Production. Mainstream didn't get it. Underground did. And they were able to get in early on the action. In virtually every traditional industry, production is simple and easy to measure, like coal mining for example. "See how quickly you can mine coal and compare that to how quickly you are mining coal." But in Tech, every new product is a different raw material. The market is tested each time a new raw material is introduced. (Nobody knew the first iPhone was going to be a hit until the day the iPhone was sold, and THEN Apple's stock went up.) For traditional investors, they don't understand what the question is when a new product is introduced (ex. Kevin O'Leary). The user however does understand. And that is what makes an investment a no-brainer. However, these days, the traditional investors are not investing in Apple because they get the tech. Instead, they are betting on Apple specifically as a machine for tech production, regardless of product. I still don't think they get it.
- stcredzero 10y ago
  But in Tech, every new product is a different raw material More like you've gone up 1 level in the tech tree, and tech level n-1 items are the crafting components of level n. (I'm writing a game with a procedurally generated tech tree like this.)
- randyrand 10y ago
  But in Tech, every new product is a different raw material. This is not just exclusive to tech. Board games, books, Toyota are all are their own 'raw material.'
Judson 10y ago
Buffett actually confirmed[0] that he, personally, did not make this trade, and that it was either Ted or Todd (interesting that he didn't specify which). [0]: http://blogs.wsj.com/moneybeat/2016/05/16/berkshire-bought-apple-but-warren-buffett-didnt/ http://blogs.wsj.com/moneybeat/2016/05/16/berkshire-bought-a...
- tossaway1 10y ago
  > did not make this trade Is trade the right word here? It seems like there must have been lots of trades in order to establish such a position...
  - discodave 10y ago
    That's the same for pretty much any large stock transaction. There will almost never be a buyer big enough to take the other side in the size that you want. A 'trade' is also parlance for 'taking a position or bet' in finance.
  - lifeisstillgood 10y ago
    That depends. If they were buying direct from say Apple (or anyone else with a large block to sell) then they would arrange a "Fill or Kill" order - which is a exchange order type specifically for this large deal (a bit anti-market really) - basically Buffets broker and Apples broker talk on the phone and arrange the deal at a certain price and time. Buffets broker sends in an order to the exchange asking for 1.3m (or whatever) shares in Apple at 600usd and the exchange will only fill orders that take the whole - that is it does not sit there getting a 100 shares at a time, but is waiting for someone else to fill the whole lot. The other sides broker then takes the whole order about 30 seconds later and they all go to the pub. Source: listening to people who actually know what they are talking about. I may have mis-listened.
    - Ntrails 10y ago
      My understanding is that Fill or Kill doesn't require a single fill, merely that the entire volume is instantaneously filled. So, if I send FoK Buy 100 shares @ 500$, then I could end up with 100 fills of size 1, or 1 fill of size 100. It makes no difference (except occasionally in commissions/costs depending on exchange). However if there were only 99 shares it would not partially fill, and would simply cancel unfilled. Immediate or Cancel would allow you to get "up to 100 shares at a price of 500" and cancel instantly once available volume was consumed.
mrfusion 10y ago
I hadn't heard of Ted and Todd! That's interesting. What would you recommend for further reading?
- forgetsusername 10y ago
  The annual shareholder letters. http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html
nikcub 10y ago
He could have bet on Apple purely on fundamentals that fit his thesis: well-known brand, moat/protected market, solid management, nothing complicated on the books, solid investor returns/dividends, 40% ROE, in a bit of a dip (both YTD and peak), low-ish PR PE P/FCFE, etc. It can be evaluated as a value stock like many of his other investments rather than a crazy infinity/100+ PE stock that requires understanding if the tech is viable or not
- sliverstorm 10y ago
  My knowledge of Buffett is that he always wants to understand the companies he invests in, on a much deeper level than fundamentals. From memory, a few of his early winners were found by touring the company's facilities and noticing the company's physical assets (minus debt of course) were worth much more than the market cap.
- threeseed 10y ago
  If Apple continues to strategically invest in startups e.g. Didi then it could also be seen as a VC firm.
eddiecalzone 10y ago
> Buffett has maintained his aversion to tech as he doesn't "understand" it I'm not for sure Tim Cook does, either.

by jalopy 10y ago

mathattack 10y ago

I suspect that IBM fits his understanding because he views it as a services company, rather than a hardware or software company. Services he does understand. I think he also likes that they give most of their cash back to the shareholders. (Which makes them a value play rather than a growth play) I was still surprised by the investment though.

jalopy 10y ago
Agree on these points. Also, across the dozens of businesses fully owned by Berkshire Hathaway, he has unique insight into the tech vendors that those businesses rely on. The rumor is that he polled a significant portion of the managers of these businesses which helped to inform his decision that IBM would be around for a long, long time.
- mathattack 10y ago
  Interesting. The challenge is that tech companies can become obsolete very quickly. I don't think IBM is as sticky as he gives them credit for.
  - dgreensp 10y ago
    This is funny because IBM is the best possible example of a sticky tech company. The company was originally founded in 1911 and made punch-card-operated tabulating machines.
    - mathattack 10y ago
      Indeed, but I don't people are as locked in their services as they used to be. They've been resiliant, but it isn't like the 80s or 90s when a decision to buy IBM was a 20 year commitment. Now the decision to buy IBM is more around software and services. Outsourcing contracts have long lives, but software and implementation less so. This is where the Growth investor looks at something different than the Value investor. The growth investor says, "They're technologically irrelevant. They're still hawking Lotus Notes!" [0] The value investor says, "Their PE is 11, and they're buying back every share in sight." [1] [0] http://www-03.ibm.com/software/products/en/ibmnotes http://www-03.ibm.com/software/products/en/ibmnotes [1] http://www.google.com/finance?cid=18241 http://www.google.com/finance?cid=18241
      - ethbro 10y ago
        I'm not overly familiar with IBM Global Services, but from the contact I've had with them in the enterprise world I think you're undervaluing the stickiness substantially. For context, if I'm looking at the right numbers, IBM has ~USD$80B in revenue with ~USD$60B from services? IBM realized a while ago that the actual machines were replaceable, but the expertise needed to do integration on the scale they operate at less so. And given the poor success rate of major upgrade/integration projects, I expect "hire IBM" is still a fairly safe decision at the C/VP level. Whether legacy enterprises* are running mainframe or fail-tolerant distributed infrastructures, most of them are more than happy to throw money at someone to reliably turn the crank and keep them working. Edit Side note: Does Amazon actually not have a services org to build on top of AWS? Seems like they could create one just from IBM layoffs and start helping some of these sorts of customers migrate to AWS. *Excludes the vast majority of companies mentioned on HN
banku_brougham 10y ago
IBM is dying, http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ http://www.cringely.com/2016/03/08/whats-happening-at-ibm/ I hope their Apple purchase isn't an indicator of the same.
- rdtsc 10y ago
  Yeah that guy wrote a book about how IBM is dying a few years ago and ever since then keeps writing blog posts about it. Whether it is dying or not I would not listen to him.
  - banku_brougham 10y ago
    A behemoth like IBM takes a while to die. I've read a bit about IBM. They are toast, the market for mainframes, server racks and expensive enterprise service packages is disappearing.
    - notaharvardmba 10y ago
      Except watson, patents, their financing arm, 99 year contracts with governments globally...
      - josh2600 10y ago
        ... Have you ever tried to use Watson for anything? The aspect of dying is a forward looking thought which presumes that growth has ceased within the organization and the best they can do is to maintain their current state. I think that's a fairly accurate depiction of IBM's business although the recent performance notes I've seen of the Power chipset with PG_SQL are pretty encouraging.
      - ReedJessen 10y ago
        I estimate about 60% of IBMs patents are invalid after the recent Alice v. CLS Bank decision. Just no one has call them out on it yet.
    - deleted 10y ago
deleted 10y ago
[deleted]

nashashmi 10y ago

> he doesn't "understand"[1] it This! is exactly what made tech such an easy investment growth. Mainstream (2008) investors use three things to size a company: Industry and Market, Challenges, Production. Mainstream didn't get it. Underground did. And they were able to get in early on the action. In virtually every traditional industry, production is simple and easy to measure, like coal mining for example. "See how quickly you can mine coal and compare that to how quickly you are mining coal." But in Tech, every new product is a different raw material. The market is tested each time a new raw material is introduced. (Nobody knew the first iPhone was going to be a hit until the day the iPhone was sold, and THEN Apple's stock went up.) For traditional investors, they don't understand what the question is when a new product is introduced (ex. Kevin O'Leary). The user however does understand. And that is what makes an investment a no-brainer. However, these days, the traditional investors are not investing in Apple because they get the tech. Instead, they are betting on Apple specifically as a machine for tech production, regardless of product. I still don't think they get it.

stcredzero 10y ago
But in Tech, every new product is a different raw material More like you've gone up 1 level in the tech tree, and tech level n-1 items are the crafting components of level n. (I'm writing a game with a procedurally generated tech tree like this.)
randyrand 10y ago
But in Tech, every new product is a different raw material. This is not just exclusive to tech. Board games, books, Toyota are all are their own 'raw material.'

Judson 10y ago

Buffett actually confirmed[0] that he, personally, did not make this trade, and that it was either Ted or Todd (interesting that he didn't specify which). [0]: http://blogs.wsj.com/moneybeat/2016/05/16/berkshire-bought-apple-but-warren-buffett-didnt/ http://blogs.wsj.com/moneybeat/2016/05/16/berkshire-bought-a...

tossaway1 10y ago
> did not make this trade Is trade the right word here? It seems like there must have been lots of trades in order to establish such a position...
- discodave 10y ago
  That's the same for pretty much any large stock transaction. There will almost never be a buyer big enough to take the other side in the size that you want. A 'trade' is also parlance for 'taking a position or bet' in finance.
- lifeisstillgood 10y ago
  That depends. If they were buying direct from say Apple (or anyone else with a large block to sell) then they would arrange a "Fill or Kill" order - which is a exchange order type specifically for this large deal (a bit anti-market really) - basically Buffets broker and Apples broker talk on the phone and arrange the deal at a certain price and time. Buffets broker sends in an order to the exchange asking for 1.3m (or whatever) shares in Apple at 600usd and the exchange will only fill orders that take the whole - that is it does not sit there getting a 100 shares at a time, but is waiting for someone else to fill the whole lot. The other sides broker then takes the whole order about 30 seconds later and they all go to the pub. Source: listening to people who actually know what they are talking about. I may have mis-listened.
  - Ntrails 10y ago
    My understanding is that Fill or Kill doesn't require a single fill, merely that the entire volume is instantaneously filled. So, if I send FoK Buy 100 shares @ 500$, then I could end up with 100 fills of size 1, or 1 fill of size 100. It makes no difference (except occasionally in commissions/costs depending on exchange). However if there were only 99 shares it would not partially fill, and would simply cancel unfilled. Immediate or Cancel would allow you to get "up to 100 shares at a price of 500" and cancel instantly once available volume was consumed.

mrfusion 10y ago

I hadn't heard of Ted and Todd! That's interesting. What would you recommend for further reading?

forgetsusername 10y ago
The annual shareholder letters. http://www.berkshirehathaway.com/letters/letters.html http://www.berkshirehathaway.com/letters/letters.html

nikcub 10y ago

He could have bet on Apple purely on fundamentals that fit his thesis: well-known brand, moat/protected market, solid management, nothing complicated on the books, solid investor returns/dividends, 40% ROE, in a bit of a dip (both YTD and peak), low-ish PR PE P/FCFE, etc. It can be evaluated as a value stock like many of his other investments rather than a crazy infinity/100+ PE stock that requires understanding if the tech is viable or not

sliverstorm 10y ago
My knowledge of Buffett is that he always wants to understand the companies he invests in, on a much deeper level than fundamentals. From memory, a few of his early winners were found by touring the company's facilities and noticing the company's physical assets (minus debt of course) were worth much more than the market cap.
threeseed 10y ago
If Apple continues to strategically invest in startups e.g. Didi then it could also be seen as a VC firm.

eddiecalzone 10y ago

> Buffett has maintained his aversion to tech as he doesn't "understand" it I'm not for sure Tim Cook does, either.