Why No Tech For Buffet ?
Buffet is not the best investor this year but he certainly still holds a pretty unblemished track record that is longer than many banker’s ages.
Berkshire Hathaway is the largest financial institutions by market cap this year and Buffet’s pet crisis investment, Wells Fargo is the largest bank globally (market cap). So Buffet is No.1 and 2, even if he owns only 8% of Wells Fargo.
What about all the tech market darlings ? The Dells, Yahoos and Facebooks ?
Buffet doesn’t have any of that.
The most inspiring Buffet story for me has been See’s Candies, something the ordinary investor would not See Value in ? But we are the same investors who launched heartily into Facebook and its invisible intrinsic 100 bio value ?
The recent tech headlines are making me sit up a little. Tumblr sold to Yahoo for 1.1 billion and the new start up Fab, touted to challenge Amazon, having no problem securing millions as well as Tesla Motors going at 1050 times P/E not to mention Netflix at over 300 times.
Billions of dollars paid for companies that consist of just a dozen people, like in the case of Instagram ? Overnight, on line photo directory platform owners become billionaires and 17 year old teenagers 30 million for their software.
I take a huge dose of comfort from knowing that Buffet does not invest in tech stocks because he cannot value them too !
Tech cycles are harder to predict or analyse and if you ask me, it more a lottery “hit or miss”. A little like pharmaceutical drug trials and rewards.
Buffet has underperformed this year, he has warned. It is not that he has lost his eye for a good stock. It is because the market is so flushed with liquidity that poor performance is forgiven and rallies along with the rest.
Not in the past month, you would say. And you are right. Just this week, WSJ reported,
“Fund managers will have to work harder to achieve strong returns for their clients as the U.S. Federal Reserve begins to scale back its quantitative easing measures, senior participants of the asset management industry have warned.”
* Insiders at Apple and Google have been selling their shares
* Samsung is taking a hit for their Galaxy flop
* Apple sales are falling and with no new ground breaking product lined up
* Blackberry is seeing RED
* Facebook is the still the worst tech IPO in a decade
* Intel chip sales are falling
Tech start ups are the high capital intensive. That makes their breakeven much higher if rates were to go up. Most of them pay little to no dividend.
NASDAQ Composite is holding the 50 day moving average and looking strong at 3403. But I am willing to wager a mini tech bubble in the works within the next 3 months for a downside correction towards the 3000-3100 support.