This decade saw Warren Buffett finally exit IBM, jump big into Apple

Wealth


As we get ready to say goodbye to the 2010s, CNBC.com is taking a look back at the key players, events and transformations from Wall Street to Silicon Valley to corporate America to the White House that shaped a “Decade of Disruption.” In the lead-up to New Year’s Day 2020, CNBC’s online journalists will be exploring the moments that defined the past 10 years for your money and set the table for the next decade and beyond.

One of Warren Buffett‘s biggest investment mistakes, IBM, played out over an agonizing seven-year stretch this decade, which saw the stock plummet along with the company’s fortunes. However, the Berkshire Hathaway chief was undaunted by his misstep in technology, a sector he generally avoided as a self-admitted Luddite. While fully exiting IBM in the early part of 2018, Buffett simultaneously revealed to CNBC that Berkshire Hathaway amassed an even bigger stake in Apple, which by late 2019 would become his most valuable holding.

Berkshire’s transition out of IBM and in to Apple marked a changing of the guard in technology. IBM and Apple, rival computer-makers in the 1980s, took very different paths over the years, with IBM struggling to capitalize on its focus on enterprise and Apple emerging and thriving as a dominant force in consumer electronics with the iPhone.

Berkshire started buying IBM shares in 2011

Buffett’s IBM debacle began in November 2011 when he said on “Squawk Box” that Berkshire Hathaway bought 64 million shares at an average price of $170 each, valuing the stake at the time at $10.7 billion. Buffett said he went against his no-tech-company-rule because he’d been “hit between the eyes” by how IBM finds and keeps clients. “It’s a company that helps IT departments do their job better,” he added. “There is a lot of continuity to it.”

However, by the time he told CNBC’s Becky Quick in May 2018 that Berkshire Hathaway no longer owned any IBM stock, the tech company had suffered nearly six years of declining revenue and a share price sinking into the mid-$140 range.

Wasting no time licking his wounds, Buffett said, in that same May 2018 CNBC interview, that Berkshire Hathaway bought 75 million more Apple shares, adding to its already huge stake at the time of 165.3 million shares.

In a statement to CNBC then, Apple CEO Tim Cook said the company is “thrilled to have Warren and Berkshire Hathaway as a major investor.” Cook added, “On a personal level, I’ve always greatly admired Warren and have always been grateful for his insight and advice.”

Berkshire buys small Apple stake in 2016, then goes big

Berkshire Hathaway, through one of Buffett’s lieutenants, bought its first 10 million Apple shares in May 2016. In February 2017, Buffett, who didn’t even personally own an iPhone, told CNBC that Berkshire added almost 76 million Apple shares to its holdings the prior month. “Apple strikes me as having quite a sticky product, and an enormously useful product to people that use it,” Buffett told CNBC.

Buffett also said in February 2017 that he was more certain about Apple’s future than that of IBM. Five months later, he said he lost confidence in IBM. “When it got above $180 we actually sold a reasonable amount of stock,” he said at the time. About a year later, he was out of IBM completely.

Apple is Berkshire’s most valuable holding at $72 billion

As of Sept. 30, 2019, Berkshire Hathaway held nearly 249 million shares of Apple. Based on Apple’s $291.52 closing share price Monday, Berkshire’s Apple stake was worth more than $72 billion. Apple stock hit an all-time, intraday high of $293.97 on Friday. On a closing basis in 2019, Apple is up a stunning 85% as of Monday, far and away the best performing component this year of the 30 stocks that comprise the Dow Jones Industrial Average.

Berkshire owns all or parts of over 60 companies including Geico auto insurance, Nebraska Furniture Mart, running-shoe maker Brooks and NetJets. It also buys stocks in blue chip companies and tends to hold them over a number of years.

After Apple, rounding out Berkshire’s top five holdings by market value are Bank of America, Coca-Cola, Wells Fargo and American Express. Berkshire also has major stakes in dozens of other household names such as Kraft Heinz, J.P. Morgan Chase, General Motors and Amazon.

Buffett said in the past that he admired what Jeff Bezos did with Amazon but was too late to the buy stock. Earlier this year, however, one of his lieutenants started buying Amazon, building up a stake worth nearly $1 billion based on Amazon’s $1,846.89 close on Monday. (Buffett’s Berkshire, Bezos’ Amazon, and J.P. Morgan, run by Jamie Dimon, all work together in a joint venture called Haven, which aims to figure out how to reduce health-care costs.)

How Buffett become one of the richest in the world

Buffett, who bought his first stock at age 11, has become one of the most successful and celebrated investors of all time and earned the nickname The Oracle of Omaha. He built Omaha, Nebraska-based Berkshire Hathaway into an investment powerhouse. Berkshire’s annual shareholders meeting, which has been called the Woodstock of Capitalism, draws tens of thousands of the Buffett-faithful to Omaha every year.

As of Monday, according to Forbes, Buffett is the third richest person in the world, with a net worth of nearly $90 billion. He has promised to give nearly all of his fortune away to charity. He started The Giving Pledge with Bill and Melinda Gates in 2010, which gets other billionaires to commit to giving a majority their money away to “address some of society’s most pressing problems.” More than 200 of the world’s wealthiest people have made the pledge.

While a wildly successful investor and a generous philanthropist, Buffett is also known for his frugality. He likes eating at McDonald’s and drinking Coke. He still lives in the same house he bought in 1958.

With Berkshire’s 2019 annual meeting in the books, users can revisit the highlights in CNBC’s Warren Buffett Archive, which houses searchable video from 25 full annual meetings, going back to 1994, synchronized to 2,600 pages of transcripts. The Warren Buffett Archive also includes 500 shorter-form videos arranged by topic, CNBC interviews, a Buffett Timeline and a Berkshire Portfolio Tracker.



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