Legendary investor Warren Buffett has often been questioned or even criticised for his lack of exposure to world-beating technology shares. Although that is unlikely to change any time soon, a regulatory filing with the United States Securities and Exchange Commission (SEC) on Monday showed that he has made one big exception.
According to the filing, Buffett's Berkshire Hathaway has picked up just over 9.81 million shares in Apple Inc, whose share price rose 3.7% overnight to US$93.88. The shares were valued at US$1.07 billion as at March 31 2016, although they have since retreated after the tech company reported a fall in iPhone sales during the first quarter. The shares are now worth around US$921 million ($1.26 billion).
The investment comes at a time where many investors have cast their doubts over the iPhone maker's future. The share price has fallen sharply in recent months with some investors focused on the company's first quarterly revenue decline in more than a decade, while others question the ability of CEO Tim Cook to continue innovating.
It should also be noted that Buffett didn't personally select Apple as an investment. Buffett has, in the past, admitted his inability to understand or value modern technology companies (hence why he has avoided them), although it certainly hasn't hindered his ability to smash the market's returns.
Instead, The Australian Financial Review reported that Berkshire's senior investment managers Todd Combs and Ted Weschler had made the decision.
Regardless, there are three lessons here for Australian investors:
- Expand your circle of competence. As another legendary investor, Peter Lynch, once said, "Know what you own, and know why you own it." Investors should always make an effort to understand the businesses they are invested in, keeping within their so-called "circle of competence". However, investors shouldn't necessarily let that restrict their investment options. Expanding your circle of competence can open your world up to many attractive investment opportunities. As Benjamin Franklin once said, "An investment in knowledge pays the best interest."
- There's a lot to like about technology. Like Buffett, many Australian investors have avoided technology shares based on the assumption that they carry too much risk or are too difficult to understand. Unlike during the 2000 dotcom crash, however, many modern technology businesses have the capacity to generate revenue and huge profits, while many also have the ability to change the world in which we know it.
Given that it is listed on the NASDAQ, some investors will be uncomfortable with, or even unable to purchase Apple's shares, but there are plenty of great technology shares trading on the ASX as well. Catapult Group International Ltd (ASX: CAT) is one company showing plenty of promise, but investors could also take a look at iSentia Group Ltd (ASX: ISD), Carsales.Com Ltd (ASX: CAR) and XERO FPO NZX (ASX: XRO). - Focus on the long term. Apple has been the subject of much criticism recently, which has acted as a huge drag on the company's share price. Rather than fret over what the next quarter or six months will look like, however, Buffett is more concerned about what happens over the next five or ten years (or perhaps even longer).
Of course, that doesn't only apply to Apple's shares. Many investors are concerned about what the immediate future could hold for the share market and economy as a whole, and are letting that uncertainty keep them from investing in shares.
It's impossible to know what will happen in the short term but, with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) still trading below 5400 points and with many shares still trading at very attractive prices, now could be an excellent time to snap up a bargain.
