If you had to use Warren Buffett's principles to argue against one of his major investments, which one would you choose, and why?

Buffett's Letter to ShareholdersBuffettWarren BuffettInvestingValue InvestingInvestment Principles
Created At: 7/30/2025Updated At: 8/16/2025
Answer (1)

Selected Investment

Warren Buffett's investment in IBM (purchased approximately $10.7 billion worth of IBM stock in 2011, then gradually sold between 2017-2018).

Reasons

Buffett’s investment principles emphasize "investing in businesses you understand," seeking "enduring competitive advantages (economic moats)," and maintaining a "margin of safety." However, his IBM investment can be challenged against these principles:

  • Violating "investing in understandable businesses": Buffett historically avoided tech stocks due to the sector’s rapid, unpredictable evolution. He openly stated he was no technology expert, while IBM’s core business—cloud computing, AI, and enterprise software—involved fast-paced innovation and fierce competition, falling outside his "circle of competence." Though initially optimistic about IBM’s brand and enterprise services, he later admitted failing to foresee its transformation challenges, contradicting his principle of "only investing in simple, understandable companies."

  • Lack of durable moat: Buffett favors businesses with strong economic moats, like Coca-Cola’s brand dominance or Apple’s ecosystem. Yet IBM faced intense competition from Amazon AWS and Microsoft Azure. Its moat (e.g., patents and technology) weakened rapidly amid tech disruptions, failing to deliver sustainable advantages. This clashed with his value investing philosophy, and he later conceded IBM’s business model was less "enduring" than expected.

  • Insufficient margin of safety: Buffett stresses buying at prices far below intrinsic value. While IBM’s initial valuation seemed attractive, declining profits and stagnant stock performance led to poor returns (Berkshire ultimately sold at a small loss). This contradicted his cautious principle of "It’s better to miss an opportunity than make a mistake," highlighting the risks of ignoring industry dynamics.

Overall, this investment—one of Buffett’s rare forays into tech—is widely regarded as a misstep. When scrutinized through his own principles, it exposes the cost of deviating from core investing tenets.

Created At: 08-05 08:28:05Updated At: 08-09 02:23:44