Monday, November 14, 2011

Buffett Goes Whole Hog Into IBM

Warren Buffett revealed a big purchase of IBM stock, couching it in his familiar language of favoring companies with durable competitive advantages.  In IBM's case, the purported advantage is the loyalty of the company's IT clients to its services.  What else about Big Blue could have caused Mr. Buffett to shed his long-held aversion to owning technology stocks?  I'll offer a theory. 

I noted months ago that Mr. Buffett's recent investments reveal bets on oil scarcity (Lubrizol) and crony capitalist bailouts (Bank of America).  IBM can be seen as a similar play on those control systems that will prove necessary for a global population faced with energy scarcity and a transition to neofeudalism.  IBM is a leading provider of smart meter integration services for utilities.  You may not have heard much about the smart meter revolution but that's okay.  Smart meters are going to hear a lot about you.  These are devices that monitor the power consumption in each utility customer's home.  Utilities expect to be able to predict demand for energy at a household level and offer customized incentives targeted to each family's consumption patterns.  The smart grid will know exactly how long each of your electric appliances is turned on.  Data on the types of appliances households own and how they are used is invaluable to marketers. 

A bet on Big Blue is more than a bet on the low-hanging fruit of intelligent IT and energy conservation.  It's a wager that smart grids and the erosion of privacy they represent will be a windfall for technology companies.  Data service providers like IBM will store and sell data on consumer lifestyles to companies that want to know how you use everything in your home.  Mr. Buffett is a smart man indeed if he is betting on a trend toward more global controls on individual lifestyles. 

Full disclosure:  No position in IBM at this time.