Buffett's other big tech bet has been a bust
Investors might be tempted to follow Berkshire Hathaway's faith in Apple (AAPL). But his other big bet on a big tech company hasn't worked out well.
Berkshire just plunked down on $1 billion on Apple, but its largest technology holding is still International Business Machines (IBM). Berkshire owns 81 million shares of IBM - or 8.4% of its shares outstanding - for a total investment of about $12 billion, says S&P Global Market Intelligence. That makes IBM not only one of Berkshire's biggest holdings but also its largest tech-stock holding by far.
IBM hasn't worked out well for Buffett so far. The shares are down 8.6% since Buffett bought the stock in 2011. That's a poor showing on such a large investment if you consider that the Technology select sector SPDR fund is up 64% during the same time period and the Standard & Poor's 500 is up 56%.
Buffett has never been a huge fan of tech investments. Berkshire Hathaway has just a 10% weighting of public holdings in information technology stocks largely due to big holdings in IBM, VeriSign (VRSN), Visa (V) and MasterCard (MA), says S&P Global Market Intelligence. That's not particularly big for Berkshire, ranking third behind consumer staples at 39% and financials at 32%.
Berkshire's other tech investments - which are much smaller - have actually done much better than IBM. Internet registration firm VeriSign is Berkshire's No. 2 biggest tech investment. The shares have done well under Buffett's ownership, jumping 119% since last 2012. The trouble is that Berkshire's holding in VeriSign stock is just $1.1 billion - far too small to counteract the losses in IBM.
Berkshire's holdings in credit card processors Visa and MasterCard have also performed well. Those holdings are up 262% and 281%, respectively, since Berkshire disclosed its holdings. Again, though, these stakes are relatively small at $760 million for Visa and $500 million for MasterCard.
Apple might technically be a technology stock, but Buffett probably doesn't see it that way, says Robert Johnson, President and CEO of The American College of Financial Services. "I don't think Apple is as much selling a product as they are selling an experience. That is, they sell a product that has high brand loyalty, high barriers to entry, and high switching costs," he says, making Apple a classic Buffett-style investment.
BERKSHIRE'S OTHER TECH HOLDINGS
Company, Symbol, Market value ($ millions), % ch. since position taken
International Business Machines, IBM, $11,972, -8.6%
VeriSign, VRSN, $1,097, 119%
Visa, V, $759.5, 262%
MasterCard, MA, $498.7, 281%
Sources: S&P Global Market Intelligence, Paste BN