Throughout his incredibly successful investing career, Warren
Buffett has made money investing in a number of different types of
companies. He's found big winners in consumer products firms like
Coca-Cola; financials like American Express; food-related companies
such as Dairy Queen; insurers like GEICO; and many others.
One area into which Buffett rarely delves, however, is technology.
But as Robert Hagstrom noted in his 2002 book The Essential
Buffett: Timeless Principles for the New Economy, Buffett's
reluctance to invest in tech firms "is not a statement that
technology stocks are unanalyzable." In fact, while it's often said
that Buffett shies away from tech firms because he doesn't
understand them, Hagstrom says that's not true. At Berkshire's 2000
annual meeting, he says, Buffett said that "It is not that we don't
understand a technology business or its product. The reason we
don't invest is because we can't understand the predictability of
the economics ten years hence."
There's certainly some wisdom in that; by nature, the technology
sector will always be more prone to game-changing surprises than
most other sectors. But as we move into 2010, a number of areas of
the tech market involve products or services that have become
entrenched in the daily lives of individuals and businesses -- not
trendy, here-today-gone-tomorrow items, but items around which
industries have been built and in which extensive infrastructure
investments have been made. Studies, for example, show that more
than 75% of Americans own a personal computer, while about
two-thirds of U.S. homes have broadband Internet service. And
almost a third of North American adults own some sort of GPS
Some of Buffett's recent picks have reflected the intertwining of
the technology world and today's business world. In 2009, Buffett's
Berkshire Hathaway picked up shares of Becton, Dickinson and
Company (not long after my Buffett-based model targeted the stock),
which makes a variety of drug delivery and medical diagnostic
technologies. And technology is also a big part of Chinese electric
carmaker BYD, in which a Berkshire subsidiary has invested almost a
Because our society has become so reliant on technology, I allow my
Buffett-based Guru Strategy computer model to roam the tech sector
to find investment ideas. My model -- based on the book
Buffettology, written by Buffett's former daughter-in-law and
colleague Mary Buffett -- dives deeper into a company's history
than any of my guru-based strategies, looking for companies with
decade-long track records of success.
Not many technology firms boast such lengthy track records, so when
a tech stock does catch my Buffett model's eye, I take notice --
and currently the approach is keen on a few such stocks. Here's a
look at how these firms have been able to put together the
long-term results and balance sheets that my Buffett-based approach
likes to see, despite being in a sector that can be prone to
Garmin Ltd. (
Garmin is up more than 60% since the 10-stock Buffett-based
portfolio I track on Validea.com picked it up last March, and the
stock still gets a perfect 100% score from my Buffett-based model.
A big reason is its decade-long history of strong earnings growth.
The $6.4 billion market cap firm, whose international headquarters
are located in Kansas, has upped earnings per share in 8 of the
past 10 years, growing EPS at a 34.5% rate over that period.
Buffett has been known to target conservatively financed companies,
and the model I base on his approach looks for firms that have
enough annual earnings that they could, if need be, pay off all
long-term debt in less than five years. Garmin doesn't need five
years; it doesn't even need five minutes. The company has no
long-term debt, a great sign.
Another reason the Buffett-based approach likes Garmin: The company
has averaged a 28.5% return on equity over the past ten years,
almost double the model's 15% target. That's a sign of both the
strong management and "durable competitive advantage" Buffett is
known to look for.
Infosys Technologies (
Based in India, this $32 billion market cap I/T firm gained more
than 55% while in my Buffett-based portfolio from mid-July to late
December of last year. It still gets very high marks my Buffett
model, thanks in part to its having upped EPS in each year of the
past decade. The firm also has no long-term debt, and has averaged
a 32.6% return on equity over the past ten years.
In addition, Infosys has generated a 29.8% return on retained
earnings over the past decade. (This is derived by taking the $2.13
its EPS have increased in the past 10 years and dividing it by the
amount of earnings it has retained -- i.e., not paid out in
dividends -- in that period, $7.15.) That's more than twice this
model's 12% target, another sign management is doing a good job
with shareholder money.
FactSet Research Systems Inc. (
This Connecticut-based provider of global financial and economic
data is another technology company with an impeccable earnings
history. It has upped EPS in each year of the past decade, growing
them from $0.49 to $2.97 in that time.
The $3 billion market cap firm also has no long-term debt, a
10-year average ROE of more than 25%, and $3.05 in free cash flow
per share, all of which earn high marks from my Buffett-based
Disclosure: At the time of publication, John Reese was long GRMN,
INFY, and FDS.