When Berkshire Makes ‘Surprising Tech’ Investments, It Pays off to Pay Attention
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He once said, “Never invest in a business you cannot understand.”
But when Berkshire Hathaway Inc. (BRK.A) revealed in a May 2016 regulatory filing that it had purchased $1 billion worth of Apple Inc. (AAPL) shares, it appeared that Buffett had broken his own rule.
After all, it’s hard to image the Oracle of Omaha knowing the ins and outs of Apple’s business when he reportedly bought a computer just to play bridge.
But as it turns out, it wasn’t Buffett who made this move, and that offered retail investors a signal of how to spot potential profit opportunities.
Succession Plans
Buffett and Berkshire Vice Chairman Charlie Munger are 92 and 98 years old, respectively, so they know they are closer to the end of their careers than the start.Back in the early 2010s, they also knew they needed a succession plan, which is why they brought on Todd Combs and Ted Weschler.
Combs and Weschler are both former hedge fund managers, and they manage roughly 10% of Berkshire’s portfolio as of 2021.
Buffett shared that the 2016 purchase of Apple wasn’t made by him, but in fact by Combs or Weschler. He didn’t confirm which man made the investment but said that when smaller trades are made, it’s either Combs or Weschler who made them, and they don’t need to consult him.
Since then, Berkshire has gone on to purchase more shares of AAPL, and in May 2022, Berkshire was sitting on $90 billion in profits from its stake in Apple. Now, while you can’t get a time machine to go back and follow Berkshire’s original investment in Apple, a new “buy” signal is flashing in another of Berkshire’s tech stock investment.
In October and November 2021, Berkshire purchased 14.66 million shares of Activision Blizzard Inc. (ATVI) at an average cost of about $77 per share for a grand total of around $975 million.
Just a couple of months later, in January 2022, Microsoft Corp. (MSFT) announced plans to acquire Activision for roughly $68.7 billion at $95 per share.
According to Buffett, Berkshire had no knowledge of Microsoft’s acquisition plans at the time of its purchase, and, once again, either Combs or Weschler had made the purchase.
“In any event, the investment manager’s $77 per share purchase could have been replicated after the Microsoft proposal was announced at a price of $78 or so,” Buffett wrote in a letter sent to reporters in February 2022. “His purchase was no bonanza of any sort for him or Berkshire.”
ATVI is trading at $76.84 as of this writing. If the deal with Microsoft closes at $95 per share, that represents a 23.63% premium from the stock’s current price for anyone looking to follow Berkshire’s move into ATVI.
There’s no guarantee that the deal will close, as the acquisition is facing an antitrust probe, but with the bearish market conditions everyone is facing now, an opportunity to make a 23.63% profit is not something to overlook.