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Warren Buffett explains why he's investing in a risky tech sector: wearables

Warren Buffett has notably been cautious about tech stocks in the past, famously saying that he doesn't invest in businesses where the tech is beyond what he understands. While Berkshire Hathaway invested in IBM six years ago, and in Apple last year, both companies are well-established blue chips by this point.

On the other hand, wearables are a much more speculative -- and so far, unproven -- bet. But Buffett is taking the plunge.

Berkshire Hathaway's Richline Group, which focuses on jewelry, will be launching Ela (Elegant Lifestyle Accessories) in the spring, as previously reported by ZDNet. The smart jewelry allows the wearer to set custom color and vibration alerts that will notify them when they are getting a call or text message from certain senders.

The wearables industry grew only 3.1 percent year-over-year in the third quarter of 2016, according to IDC, and one of the category leaders, Fitbit, just laid off 6 percent of its workforce (110 people) after acquiring software and intellectual property from rival Pebble.

So what is Buffett thinking?

Turns out, he's thinking of Ela as an enhancement to an existing well-known business, jewelry, rather than a tech business in itself.

"Jewelry is a centuries-old business that isn't going anywhere, so it's a safe bet," he told CNBC in an emailed statement. "With the addition of technology, we're simply updating something everyone knows and loves to better fit our modern age."

Richline Group product and innovation manager Cliff Ulrich explained, "We've designed Ela to be jewelry first. As a jewelry company, we understand jewelry retailers and consumers, what they want to carry and buy. They want to create an emotional connection, whether your giving Ela as a gift or buying it for yourself because you just got a bonus. Ela allows you to save memories in your jewelry, like a modern day locket."

Ulrich also pointed out that the jewelry business is very different from how wearables companies typically market and sell their products. "The business of selling jewelry is a lower turn, higher margin business. Technology companies need to understand that if they want to sit in a traditional jewelry display."

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