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The 'Apple' of Buffett's Eye Aug 26, 2016
Warren Buffett famously said he wasn't comfortable investing in tech companies because he did not understand them. The idea was to stay within his circle of competence.
However, a look at Berkshire Hathaway's portfolio reveals that Buffett has changed his stance on tech companies. The addition of IBM and Apple are testimony to that.
But why was Buffett in the early days so averse to investing in tech companies? And why is he okay with investing in Apple now?
Buffett, as we know, likes stable companies with strong competitive advantages, consistent earnings, and predictable cash flows. In that sense, tech companies do not really fit the bill. These companies have to constantly innovate to stay ahead of the curve, and it is very hard to predict the next disruptive technology.
For every company that stands out (your Apples, Googles, Facebooks), there are more than enough duds. The dotcom bubble was a classic example of the crazy lengths investors are willing to go for tech companies.
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