Let's start with the obvious. Warren Buffett is the greatest investor of our time. No, check that. The greatest investor who has ever lived. His optimism today suffused trading and his optimism has been justified.
Buffett believes in progress. He believes in America. That combination produces a tremendous bias toward investing in the country's businesses. Sure, he can get some very good deals we can't get. He has been able to buy large positions in stocks that he knows well and he's also been able to buy whole companies at fabulous valuations. He is adamant that you, too, can do well by owning index funds and, judging by the popularity of these funds many Americans agree with him. I do, too. They are a low-cost way to profit from the progress of our capitalist democracy and you don't have to look at annual reports on conference calls to do so. They have done phenomenally well as long as you don't time the market because the odds favor that you won't get back in in time after you get out and the big moves only occur on a few days a year. You miss them, you lose the benefits. So the longer the haul, the better.
That's a fabulous thing.
Sure he's made mistakes and had some losses, but they are few and far between. There are far more winners even as he always is talking his losers because he believes that it is vital to learn from them.
Now, it's one thing to make a mistake that costs you. It's another thing to miss out some good investments. I think all that matters are the losses. If you are going to play the game of damning yourself by saying "woulda, shoulda coulda," make sure it's about how you didn't cut your losses -- a learning experience -- versus passing on some great ones, not worth the waste of mind space.
Incredibly, though. Buffett and his 94-year-old doppelganger, Charlie Munger are perfectly willing to go there, too. These two are so deservedly confident about themselves and their judgment that they can actually talk about stocks they missed with a minimum of regret and a maximum of praise for those who created companies with stocks that they missed, the two most glaring being Amazon (AMZN) and Google, or Alphabet (GOOGL) .
Now you can never be hard on these guys. For example, they completely nailed the stock of Apple (AAPL) and were able to build up a 5% position in the world's largest stock, using weakness caused by analysts who simply looked at it as an also-ran tapped out tech play, rather than a much loved device company with the highest brand loyalty ever. Remember Buffett has historically loved companies with great big brands. American Express (AXP) , Coca Cola (KO) are two of his largest positions and he has held on to them forever. Both have phenomenal love. Both are renowned all over the world.
More important, Warren Buffet was once the largest shareholder in Gillette -- he had 10% of the company, or 99 million shares, the company's largest shareholder -- and he killed it when Procter & Gamble (PG) bought the company for $57 billion back in 2005. Buffett sat on the board for 14 years.
I think it is fair to say that few knew how well run Gillette was than Buffett did. And let's remember that Gillette is the place where we first heard about the razor-razor blade model: you sell 'em a razor for a cheap price and you make it up on the blades.
Sadly Procter & Gamble has gone the other way now, charging a fortune for the razor, wrapping it in tons of plastic and having the customer chase down non-existent help in drug stores to get a key to open where the razors are kept. That's why so many of us have switched to Dollar Shave.
When Buffett first bought Apple he started out by seeing a bunch of kids at one of his holdings, Dairy Queen, all with iPhones. I think he quickly came to the conclusion that the iPhone was this generation's Gillette and the services stream would inflect one day. It turns it was this quarter right when he had bought another 75 million shares.
Today Munger directly dissented on the position saying that they were wrong not to buy much more. I like that.
But Buffett was incredibly critical of himself for missing Alphabet and for avoiding Amazon even as he acknowledges that Jeff Bezos, CEO of Amazon, and his partner along with JP Morgan (JPM) in a health initiative, is a miracle worker
So how did they both misses these two?
I think it's because they don't have iPhones themselves.
While these services, Amazon and Alphabet's Google, worked well on the desktop, it was the handset that led to the explosion in sales for both Google and Amazon.
If you didn't have an iPhone you may not have realized so much.
What would you not see?
First, I think that the cloud would have eluded you. When you plug into these services you are plugging into a data center where the cloud resides. There is simply no way you can measure the worth of these companies if you don't understand the cloud. Moreover, you would simply think that Amazon is a retailer if you didn't know about the cloud and Warren Buffett knows retail very well but he doesn't appear that well-versed about the cloud.
The big three cloud companies are Microsoft (MSFT) -- which he also regretted missing, Amazon and Google. There's a fourth that's gaining in importance but seems to be buried within an incumbent business that obscures it, the IBM cloud. I think had Buffett figured out how close IBM is to having its cloud and cloud related strategic imperatives breach 50% of the operation he would have been more inclined to hold rather than sell as he did, especially because the biggest reason he gave for his massive Apple purchase beyond the ecosystem is the gigantic buyback which will make Berkshire increase its percentage ownership over time. That was the same reason he gave for IBM and its gigantic buyback, one that I think IBM did in part to please Buffett.
It was unrequited and sometimes I wish they had just taken the plunge at IBM and bought a cloud king like the ones we have been suggesting you buy: Adobe (ADBE) for Cloud commerce, Service Now (NOW) and Workday (WDAY) for transforming internal operations on the cloud, Salesforce (CRM) for customer relations, Splunk (SPLK) for data analytics and New Relic (NEWR) for cloud support and VMWare (VMW) and Red Hat (RHT) for cloud on-boarding. All of these two- and three-word epithets are ridiculous short hand for their prowess and I beg you to do the work before buying any of these. However, I can tell you that if Buffett and Munger don't know the cloud, they sure as heck don't know these companies and that means we are still in the early innings.
Now that Buffett's gone from the stock, I wish IBM would set its sights on buying a cloud prince, either Coupa Software (COUP) a cloud purchasing provider or Nutanix (NTNX) a designer of enterprise cloud platforms and software designed storage. Again, short-hand for cloud abettors, companies that help customers get the most out of the cloud for supplies and for their enterprises. New Relic of the kings and Coupa of the princes are small enough, $4 billion and $2 billion respectively to leave plenty of room for IBM's buyback, albeit at a slower pace, but either would send the strategic imperatives over the 50% barrier.
No matter, the real takeaway here is that because neither man used a cellphone and instead just became the biggest owners of the company, they missed out on some incredible investments, something that I only bring out because they went there. I would have been happy just to praise but if you are going to admit you made a mistake I think it's far for someone -- might as well be me -- to suggest why it happened.
