Warren Buffett’s stake in Apple illustrates not just how the two principals have changed, but, rather, how the world has changed.
Apple has become something that looks strangely like a value stock and Buffett is venturing into an area — technology — he’s in the past said he doesn’t understand.
More to the point, technology has become more than simply a business sector. You can no more be an investor who eschews technology, however you may define it, than you can be a life form not based on carbon. Both are now basic building blocks.
Buffett’s Berkshire Hathaway disclosed a more than $1 billion stake in Apple last week, a position he told the Wall Street Journal was taken by one of his two in-house investment managers.
This, after all, from a man who during the dot-com boom in the late 1990s explained eloquently why he and partner Charlie Munger steered clear of technology:
“Our problem — which we can’t solve by studying up — is that we have no insights into which participants in the tech field possess a truly durable competitive advantage,” Buffett wrote in 1999.
That argument boils down to two points: Buffett can’t figure out which tech businesses have a defensible “moat” around them or how technology might change to undermine those advantages.
Apple’s premium brand may be that kind of deep moat, but you could argue that the rate of technological change has, if anything, quickened since 1999.
The question now isn’t which online pet supply delivery company will win out — we know it is probably Amazon. It is, instead, what company could possibly have a business which is insulated from the impact of technology and digitization. Very few if any meet that definition.
As the impact of technology on business becomes more pervasive, a policy of sitting things out to see who the winners are in the end carries more risk today than ever before.
There is also the fact that Apple has become a lot more like the value companies Buffett has traditionally made his specialty. Apple trades at a price-to-earnings ratio of about 10, roughly half the valuation placed on the broader stock market. Apple is also returning cash to shareholders.
And Apple is a cash machine generating huge cash flows which makes it in its own way not too dissimilar to other sectors Buffett has traditionally favored.
These are the characteristics of a more mature company.
James Saft is a Reuters columnist.