Billionaire peers Gates and Druckenmiller warned Buffett he'd be wrong on IBM

Key Points
  • Bill Gates and Stanley Druckenmiller previously said they disagreed with Warren Buffett's IBM investment.
  • Buffett told CNBC he was "wrong" on IBM and "revalued it somewhat downward."
  • IBM shares have significantly underperformed the S&P 500 since 2011.
Gates and Druckenmiller said Buffett was wrong about IBM

Billionaire peers Bill Gates and Stanley Druckenmiller both warned Warren Buffett in 2015 he would be wrong on IBM. They were right.

The Oracle of Omaha told CNBC's Becky Quick that his Berkshire Hathaway sold about 30 percent of its stake in IBM during the first and second quarters of this year. Berkshire was IBM's largest shareholder at the end of 2016 with an 8.6 percent stake in the company, according to FactSet.

"I was wrong … IBM is a big strong company, but they've got big strong competitors too," Buffett told CNBC. "I don't value IBM the same way that I did six years ago when I started buying ... I've revalued it somewhat downward."

IBM has significantly underperformed the market during the last six years. The technology company's shares are up 8 percent from the beginning of 2011 through Thursday versus the 90 percent return.

One of Buffett's closest friends, Gates, predicted IBM's troubles in May 2015 during an interview with the Financial Times:

"IBM became less of a technology company. It's really sad. It turns out, at least so far, Warren was wrong. Even with the enterprise customers, the cloud has not been saleable for them. I'm biased. IBM is a wonderful company but because I competed with them for many, many decades I have to say, I don't see their future as brightly as people who are long on the stock."

In similar fashion, billionaire investor Druckenmiller revealed in November 2015 he was short IBM because of cloud computing's competitive threat to the company.

"I love Amazon because they invest in their future. Bezos is a serial monopolist. AWS (Amazon Web Services) is absolutely exploding. It's ripping to shreds the 10 or 15 consultants you used to have from IBM that you don't need because of the cloud," Druckenmiller said.

Druckenmiller is chief executive officer of the Duquesne Family Office and the former lead portfolio manager for George Soros. The billionaire's hedge fund has generated annualized returns of 30 percent during his investment career.

Perhaps Buffett should have followed his own advice. The investor famously explained in his 1999 shareholder letter why he avoided technology stocks:

"Nevertheless, we believe these companies have important competitive advantages that will endure over time. This attribute, which makes for good long-term investment results, is one Charlie and I occasionally believe we can identify. More often, however, we can't — not at least with a high degree of conviction. This explains, by the way, why we don't own stocks of tech companies … we have no insights into which participants in the tech field possess a truly durable competitive advantage." – Berkshire Hathaway 1999 shareholder letter

But after vowing to avoid the sector, Buffett changed his mind with his purchases of IBM and Apple shares. And now with the investor admitting he was "wrong" on IBM, investors may wonder about his other tech investment.

He told CNBC in February, he did the research on the smartphone maker himself by asking people how they like Apple products.

"Apple strikes me as having quite a sticky product, and an enormously useful product to people that use it," Buffett said. "I don't have an iPhone … I have an iPad. Somebody gave it to me, though."

Time will tell if Apple has that competitive advantage IBM was lacking.

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