Warren Buffett has just published his annual letter to shareholders (PDF) and Berkshire Hathaway's 13F filing, giving market watchers an insight into his view of the technology markets. It turns out that he had a brief flirtation with Oracle, but held on to all his Apple shares, despite "one other fellow" from Berkshire Hathaway selling a few million.
Buffett's widely-publicized investment strategy is to buy shares in companies he understands and hold them for the long term. It turns out he broke both rules with an Oracle shareholding worth $2.1 billion, which appeared mysteriously in the third quarter report and had vanished by the time the fourth quarter numbers were unveiled.
The topic came up in a two-hour TV interview with CNBC's Becky Quick. Buffett explained that "after I started buying [Oracle], I felt I still didn't understand the business. I actually changed my mind in terms of understanding it, not in terms of evaluating it. Oracle is a great business, but I don't think – particularly after my experience with IBM – I don't think I understand exactly where the cloud is going."
Buffett also confirmed that he didn't sell any Apple shares, and said he would have bought more if they'd been cheaper. However, "one other fellow in the office" sold about three million of his seven million. This was the investment manager who started buying Apple shares for Berkshire Hathaway before Buffett joined in.
Buffett explained that this employee "works with a limited amount of money – $13 billion, roughly – so if he wants to buy something he needs to sell something. If I want to buy something, I have cash around to do it."
Apple is Berkshire's biggest single holding. Buffett owns Apple shares currently worth more than $44 billion, so he owns 5.4 percent of the company. Buffett said he expected this to increase as Apple bought back its own shares, giving Berkshire a higher proportion of the company. However, he said he would avoid having more than 10 percent.
Buffett bought Apple shares at a wide range of prices, but the average was around $141. He doesn't find them particularly attractive at $175.
Although Berkshire Hathaway is famous for avoiding technology stocks – it's one reason why major sales or purchases make news – the company has also bought four million Red Hat shares worth $733 million at the end of the financial quarter. This will be a profitable holding if IBM's takeover of Red Hat goes through as expected.
The $34 billion takeover is a substantial gamble for IBM: it will have to borrow up to $20 billion to complete it. Berkshire, by contrast, has around $100 billion in cash, and could easily make a larger acquisition. Buffett says his problem is that he can't find anything to buy.