One of the projects I had the honor of being part of in 2013 was creating a study guide that accompanies the recently released 3rd edition of The Warren Buffett Way. Like most market observers I had always understood the methods used by Buffett and Berkshire Hathaway when selecting a stock. One that most professional investors are aware of is that Buffett shies away from investing in companies that he does not fully understand. This means he generally has stayed away from technology companies. There is actually more to the lack of technology exposure in Berkshire Hathaway’s portfolio than just a lack of understanding of the business. Buffett also is investing for the long term and it is a difficult task for a technology company to consistently remain at the forefront of their industry. Just pull up a long term chart of companies like Blackberry (BBRY – 6.08) or Hewlett- Packard (HPQ – 24.99) and you can see that yesterday’s leader in a technology sector can easily lose that status due to changes in technology.
Back in October 2011 Buffett revealed on CNBC that he had taken a stake in International Business Machines (IBM – 185.25). This was a great surprise to many in the investment community. Once he explained that IBM had a solid franchise and a management team that is focused on increasing shareholder value the investment made a little more sense. However, this is not the only technology related stock that shows up in Berkshire Hathaway’s portfolio.
Recent filings show that Berkshire Hathaway added to their position in VeriSign Inc. (VRSN – 55.49) in the third quarter of 2013. Buffett’s firm now owns almost 11,000,000 shares of VRSN or 8% of the company. It is not one of the largest holdings for Berkshire Hathaway so it may not get as much attention as some of their larger holdings. However, VRSN is a technology company that provides Internet infrastructure services and registry services for domain names. Despite being a technology company VRSN fits the mold of a Berkshire Hathaway holding. The company has a distinct competitive advantage and management demonstrates they are focused on increasing shareholder value through buying back shares.
Since I spent a good part of 2013 working on the workbook to accompany the newest edition of The Warren Buffett Way we have decided to create a new class at The Options Institute. On Friday December 13th Jim Bittman and I will dive into the methods that Warren Buffett utilizes when taking a new investment along with a twist. That twist will be option strategies that make sense for longer term investments.
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