• Berkshire Hathaway’s IBM and Apple investments could mean that Buffett’s aversion to technology names could be a thing of the past. Also, its younger managers have been calling the shots.
• Facebook’s strong financial position and return on invested capital profiles suggest a solid competitive advantage similar to both Apple and IBM.
• Buffett is constantly looking for “elephant-size” investment and Facebook’s market capitalization fits this criteria.
In the past, Berkshire Hathaway (NYSE:BRK.A, BRK.B) CEO Warren Buffett said that he would not buy technology companies. This is mainly due to the fact that there is no real competitive advantage in the technology space, reflective of the dynamic landscape. An upcoming technology start-up could produce substantial
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These double-digits returns on invested capital imply that these companies has entrenched solid competitive advantage that could potentially lead to higher share prices in the future.
The company’s strong balance sheet compared to its peers should attract Berkshire Hathaway into the company. Facebook has virtually no debt with sizable cash reserves, which are channeled to investment opportunities such as Instagram and WhatsApp; hence, further solidifying its lead in the social media space.
It should also be noted that Mr. Buffett loved traditional media companies due to the reader’s affinity in the product. Similarly, people around the world are constantly checking on their Facebook app for recent news and events, creating an advertising platform, which can be likened to the traditional media companies.
“Elephant-Size Investment”
Mr. Buffett is constantly looking for an investment that moves the needle given the massive size of his investment portfolio. In a roaring bull market, he usually stays on cash unless he finds an investment opportunity difficult to