Warren Buffett thinks Facebook and Apple are ‘too risky’

8th May 2012

The meeting draws thousands of investors from around the world eager to pick the brains of an investor dubbed 'the Sage of Omaha.'

According to a New York Times live blog of Saturday's event in Omaha, Buffett said in response to a question about Apple and Google that they are both "huge companies that make a ton of money," but that he's reluctant to invest in either of them. But nor would he bet against them.

So what does he pick as a safe long-term investment opportunity?

There is less risk in IBM shares, he says, in which Berkshire has invested.

IBM has been in business for over a hundred years now, and probably that long track record is why he is more confident about them. "The chance of being way wrong about IBM is probably less than being way wrong in Apple or Google," he said. 

Meanwhile, Buffett told CNBC on Friday that he has no plans to buy shares of Facebook – really, did you think he would want to buy shares of a company that is going to come public trading at something like a staggering 100x earnings?

The1mage comments on this story on The Motley Fool: "He follows an investment philosophy that you invest in what you know. If he doesn't understand this industry enough, then he avoids it.

"This doesn't mean he is outdated, just more focused on proven track record."

An old school investment strategy

Buffett appears particularly keen on the companies that are steeped in history rather than the new kids on the block.

The Sage of Omaha earned his reputation as a tech skeptic when he judiciously avoided hot internet stocks during the dotcom bubble. It is too hard to sort out the few potential winners from the large number of start-ups that are likely to prove ephemeral – so his reasoning goes.

He is convinced by IBM's long-term roadmap and by its entrenched position with major businesses – part of the durable competitive advantage that he looks for when investing in a company.

In fact, the Daily Telegraph reports that the 81-year old said that he is prepared to make further bets on the newspaper industry despite the challenge the industry faces from the internet. Last year Buffett paid $200m for the Omaha World Herald, his local newspaper.

"I think there is a future for newspapers that exist in an area where there is a sense of community," Mr Buffett told the annual gathering of shareholders. "We may buy more newspapers. I think the economics will be ok, but it will be nothing like the old days."

So what can investors learn from this take on stock-picking?

The lesson here appears to be picking stocks with proved longevity and a simple strategy that works.

There are other companies out there that have continued down the path of simplicity, and come out trumps – including Berkshire Hathaway's investment approach. The Economist says: "Many of the world's best-known brands make a cult of simplicity: look at IKEA with its flat packs, McDonald's with its burgers or Berkshire Hathaway with its buy, improve and hold approach to investing."

This obsession with simplicity is a useful counterbalance to growing complexity. The key is that successful companies can survive dramatic change by deciding which bits of their business models to preserve and which to dump – how else do they survive for hundreds of years in a rapidly evolving economic landscape? And Buffett knows that this is how they'll prosper and thrive in the future.

Buffett also told Berkshire Hathaway shareholders that initial public offerings are almost always bad investments. He says there is so much hype involved that IPOs won't be the most-attractive value – such as Facebook.

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