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Big Data: The Tech Theme That Won Over Buffett

13 December 2012 in Trading Ideas

Whether or not it’s a trend that delivers on expectations for investors, the explosion in the amount of data being created around the world is undeniable.

As a CNBC.com article noted last month, IBM (IBM) estimates that 90% of the data that’s out there right now has been created in the past two years alone.

Where’s it all coming from? A large part of it is coming from you: The proliferation of mobile Internet devices and social media sites that many of us are using has contributed to our move to online living — whether it be shopping, seeking directions, or posting photos.

This, in turn, has created the demand for new software and services that can allow businesses to mine this data for new insights and undiscovered relationships.

Market research firm Gartner expects “big data” will drive $28 billion in worldwide IT spending this year and $34 billion in 2013.

Of course, this trend isn’t lost on the companies that are rushing into the marketplace, and firms which can be considered industry leaders are collected in our new Big Data motif – a 20-stock portfolio of companies focused on segments such as business intelligence, data centers, data management, and enterprise storage.

It’s also the role of big data in IBM’s future that may have contributed to famed investor Warren Buffett’s decision to plow nearly $11 billion into a 5.4% stake in the technology giant last year, a surprising move to some, given perceptions about Buffett’s aversion to investing in tech companies.

However, according to a Wall Street Journal story on Nov. 15, 2011 about Buffett’s new stake, the “Oracle of Omaha” said his interest in IBM came from reading the company’s most recent annual report that confirmed its entrenched position providing tech services to businesses – the famous Buffett “moat against the competition” philosophy.

And a significant part of those future services could be big-data related. In May 2011 (while Buffett was accumulating IBM’s stock, by the way), IBM said it would invest $100 million to research and develop big-data analysis tools.

“We think it’s a good time from a research perspective to double down on how we think about big data and how people can get actionable insights from it,” said Rod Smith, IBM’s vice president of emerging technologies, at the time.

Since March 2011, when Buffett began accumulating IBM’s stock, the shares are up more than 19%.

Those investing in big data have likely taken note of that performance. It remains to be seen how well this secular boom in data creation grows corporate profit – and share-price increases — amid a less-than-spectacular economic recovery.

Performance data was as of 12/13/2012. Performance data and returns are based on past performance and are not representative of results an investor could expect to achieve. The 1-month and 3-month return shows how a particular benchmark motif could have performed over a stated period of time. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. The performance results attempt to follow a standardized and consistent methodology for performance reporting. While we believe the performance data is gathered from reliable sources, the information that generates performance results uses historical data that we believe to be accurate but has not been validated and may contain errors in pricing or other conditions. Reference to return of index does not imply its performance is comparable to a motif, but rather serves to provide a reference point. For detailed information on how we calculate returns, please visit www.motifinvesting.com.