Is a bet for Berkshire Hathaway a bet against technology? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Eric Jang, Research engineer at Google Brain, on Quora:
Is a bet for Berkshire Hathaway a bet against technology? Not really.
As Berkshire Hathaway is a holdings company, buying BRKb or BRKa right now (mid-2017) amounts to taking a position in their subsidiary businesses (Geico, Sees, etc.) and stakes in large-cap American companies, and a sizeable cash position.
Buffett and Munger do understand the value of technology, although they have repeatedly stated that they don’t believe they (Buffett and Munger) have a competitive edge in valuing technology companies.
Their statement is actually not entirely accurate – other associates at Berkshire do make technology plays, such as the much-publicized investment in Apple.
If you look at their sector allocation over the last fourteen years, they are actually increasing their allocation in information technology companies (source: BERKSHIRE HATHAWAY INC) over time.
Berkshire sold off a large stake in their Wal-Mart holdings (Berkshire Hathaway Sold $2 Billion of Wal-Mart Stock: Time for You to Sell, Too? — The Motley Fool) earlier this year, likely due to the expectation that Bezos and Amazon will outmaneuver Wal-Mart in the long run. Likewise, the selling of FOXA, IBM reflects Berkshire’s bet that old media and computing giants are less likely to do well in the long term due to the rise of companies like Google, Netflix, etc.
Furthermore, while the majority of Berkshire’s holdings are not technology-focused companies (e.g. Google), it would be silly to say that these companies do not invest technology. Nearly every company, whether it be candy or Coca-Cola or insurance or manufactured homes, relies on technology to reduce costs and stay ahead of their competitors, it’s just that technology is not the core of their competitive moat or business strategy. Financial services, which Berkshire excels in investing in, are especially welcoming to technology as many “tech” products actually function as financial services in disguise.
Importantly, buying BRKb or BRKa right now also means your portfolio composition will have a relatively sizable cash position. Buffett and Munger have said multiple times in interviews that they are very eager to deploy this cash given the right opportunity.
To reiterate, understanding technology is distinct from having a competitive edge in investing in technology. Berkshire understands technology quite well, it’s just that they don’t bet all-in on technology (unlike companies such as Alphabet and Y Combinator).
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