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Why Buffett Bought Big Blue

Anders Bylund (TMF Zahrim)
November 14, 2011

Berkshire Hathaway (NYSE: BRK-B  ) leader and legendary investor Warren Buffett just doesn't do technology. But he does understand and invest in great companies. Say hello to IBM (NYSE: IBM  ) , the latest addition to Buffett's investment portfolio in a sneaky little $10.5 billion accumulation campaign.

I don't know tech; I do know great businesses
More than 13 years ago, as the tech bubble was just getting inflated, Buffett told shareholders that he admired Microsoft (Nasdaq: MSFT  ) founder Bill Gates but wouldn't invest in his company. "I don't know what [technology] will look like in 10 years. Technology is something we just don't understand, so we don't invest in it."

Mr. Softy has underperformed the Dow Jones Industrial Average (INDEX: ^DJI  ) since some those comments were made in late May 1998. Big Blue, on the other hand, has more than tripled in value and handily crushed the market.

So why is the Oracle of Omaha getting on the IBM bandwagon today? After going through his subsidiaries' data-center operations, IBM's business came out looking strong. But more importantly, he's simply impressed by management's candid conversation with shareholders.

Buffett told CNBC about the "terrific reverence" with which IBM treats it investors. "They're honest with their shareholders. They tell their shareholders what they expect to accomplish, they expect to be held to it." And it's done in great detail: "They laid out some very specific things they expected to accomplish. I really compliment the management on that."

Anything you can do, we can do better
That attitude is rare in tech circles. Apple (Nasdaq: AAPL  ) bends over backwards to keep its intentions secret, for example. Microsoft also likes its business proprietary, patented, and held close to the vest. Even Google (Nasdaq: GOOG  ) , which was built on open technologies, still doesn't tell us simple facts like how much money (if any) YouTube is making.

The clearly communicated strategy involves "exiting commoditized segments while increasing its presence in higher-value areas such as services, software, and integrated solutions." It's a long-term move away