Though he has since changed his mind, Buffett famously avoided tech stocks for more than the first 30 years of his investing career. In an interview from the mid-1980s, Buffett said that the technological revolution had “gone right past him,” and he hadn’t found any tech companies he understood.
“It’s OK with me. I don’t have to make money in every game,” he said.
In recent years, Berkshire has made room for some of the sector’s companies, making it the portfolio’s third biggest weighting. Buffett holds IBM (IBM, Financial), and one of his deputy investors he hired to manage portions of the portfolio bought VeriSign (VRSN, Financial). Both Buffett and one of Berkshire’s mangers also own a stake in Apple (AAPL, Financial).
As 2017 draws to a close, Berkshire has a net profit on tech, though IBM has floundered.
Buffett began to lose faith in IBM during 2017, initiating a reduction to the massive holding as its stock price stagnated since his 2011 purchase. He ended the third quarter with 37,026,698 shares after starting the year with 81,232,303 shares and reducing the holding each consecutive quarter. His quarterly average sale prices were $175 for the first quarter, $158 for the second and $146 for the third. With an estimated average purchase price of $175 and sale price of $160, Buffett will end the year with an approximately 10% loss on IBM.
IBM made it on Buffett’s radar as early as the mid-1980s interview. “It’s a sensational company, but I haven’t owned any IBM,” he said.
But after finally investing in 2011, he began to change his mind this year.
“I was wrong… IBM is a big strong company, but they’ve got big strong competitors,” he told CNBC in an interview in May. “I don’t value IBM the same way that I did six years ago when I started buying … I’ve revalued it somewhat downward.”
IBM shares enjoyed a brief jump in October on better-than-expected earnings but remain down 8% year to date, trading for $154 Friday afternoon.
Cloud, a major area of focus among IBM’s competitors, showed strong growth during the third quarter. Revenues for the segment increased 20% to $4.1 billion. Overall revenue remained flat year over year at $19.2 billion. IBM’s net income fell 6% to $7.24, with net income declining 8% to 6.8 billion. Gross profit margins also slipped to 45.9% from 46.9% in the comparable 2016 quarter.
IBM generated $2.589 billion in free cash flow for the quarter, down from $3.203 billion year over year.
Internet domain and security company Verisign is thought to have been purchased by one of Buffett’s managers, Ted Weschler or Todd Combs. Year to date, the stock gained 50%.
Berkshire owns roughly 13.1% of the company, having started the position in the fourth quarter of 2014 at an average purchase price of $42 per share. As of Thursday afternoon, Buffett has an approximate gain of 213% on the company.
In the third quarter, Verisign reported a year-over-year revenue increase of 1.7% to $292 million. Net income inched up to $115 million, or 93 cents per share, from $114 million and 90 cents per share for the same periods. Operating margins also improved to 61.9% from 60.8%.
The company ended the quarter with cash of $2.4 billion, an increase of $568 million from the end of 2016. It generated cash flow of $153 million versus $165 million.
The improvements came as the company had 8.9 million domain name registrations, compared to 8.3 million, and ended the quarter with 245.8 million .com and .net domain name registrations, a 1.2% increase.
Buffett’s Apple has also gained 50% year to date. It trades for around $173.60 per share on Friday afternoon.
Someone at Berkshire initially bought Apple in the first quarter of 2016 when the price averaged only $100 per share. Buffett has said that one of his managers started buying Apple, and he then purchased much more.
At the end of the third quarter, Buffett had made Apple 11.6% of the portfolio and owned 2.6% of shares outstanding, at 134,092,782 shares.
The iPhone maker saw revenue and earnings per share increase each quarter of 2017. For its fourth fiscal quarter ended Nov. 2, Apple increased revenue 12% to $52.6 billion from the same quarter a year ago as it introduced the iPhone 8 and iPhone 8 Plus. Earnings per diluted share rose 24% to $2.07 per share.
Apple also generated $11.66 billion in free cash flow versus $12.09 billion in the 2016 comparable quarter.
Apple released its iPhone X, its most expensive to date, on Nov. 3.
In the third quarter, Buffett added a further 3,900,822 shares of Apple, increasing his position by 3%.
