"Going against his own received wisdom of not buying stakes in companies he doesn't understand, ..."
IBM isn't that complicated. I suspect he understands it just fine.
Legendary investor Warren Buffett appears to be cutting his losses on his IBM investment, slashing his shares by one-third in the last quarter. Going against his own received wisdom of not buying stakes in companies he doesn't understand, Buffett revealed in 2011 that he had amassed a 5.5 per cent share in IBM during that year …
He is famously anti-tech stock because he says he doesn't understand the business. IBM was his first foray into that, and Apple (which he has been increasing share of as he was drawing down his IBM stake) his second. You aren't likely to see him buying Facebook or Amazon, because of his value investing mantra (i.e. reasonable multiplier) and belief in dividends.
He's from an insurance background and prefers to invest in companies that make tangible items to sell, rather than IP. That's probably why he's really liked Apple, at least he can touch an iPhone, with a company like say Microsoft you can't touch CALs and Windows licenses.
He still lives in the same house he bought almost 60 years ago. How many people who aren't even millionaires have "upgraded" to a larger house when they could afford it - or even when they couldn't?
When you are worth $80 billion or whatever, your time is valuable so having a private jet is probably defensible from a shareholder perspective - I own a lot of Berkshire Hathaway stock and I certainly wouldn't vote to take it away from him!
Buffett has made it plain that he studies the companies he thinks of investing in to check whether their have a sound senior management team, which is one of his 'must haves' before investing. He also seeks companies that are 'can't live without'. For instance, he invested in Coca Cola because he realised millions of people can't live without their Cokes. He also likes businesses that are everywhere, for instance, Coca-Cola is so much a 'can't live without' that every corner store in every part of the globe (and I can attest that it is in northern Pakistan and Tierra del Fuego) has to carry it. That 'must have' used to be something IBM was good at, in that we all thought 'IBM' when we were considering solutions.
Now, not so much. So no wonder Buffett is slowly shedding his investment in them.
I think it must be going on for twenty years since I drank any of that stuff.
Therefore I think I can live without it quite well thank you very much.
However, I do accept that there are a lot of people who can't live without it as well as their Big Mac and Fries (not been into any of their outlets since 1995).
"He also likes businesses that are everywhere, for instance, Coca-Cola is so much a 'can't live without' that every corner store in every part of the globe (and I can attest that it is in northern Pakistan and Tierra del Fuego) has to carry it."
I too can testify to this. In Mexico in around 1980 I went for a walk up a hill and realised I didn't have enough water. Then I heard a strange humming coming from a large wooden shed. Outside was a small generator; inside was a refrigerator full of Coke, a counter, a shopkeeper and a load of farm workers. It was about 3 cents a bottle (gasoline was 24c a gallon at the time). I was extravagant and bought two.
I can assure you that if you are up a mountain in northern Mexico on a hot day and you find a shack selling Coke, it tastes like the best thing on Earth.
I can't easily think of a situation in which you would feel the same about IBM. For one thing, it wouldn't be cheap.
Voyna i Mor, now you have me thinking about hiking up a mountain and finding a shack selling cheap Lotus Notus licenses, which leads me to think of the sales possibilities for IBM-branded Lotus Notes-a-Cola:
* Comes in an attractive (not) yellow can
* Can frequently explodes upon opening
* The soda is free, but the can may only be opened with a special key costing $1000
* Looks, feels, and tastes like yak semen
* If you dislike it, salesperson will ask what's so special about Coke, anyway?
* Later dissolves your stomach lining and colon, leaving you wishing for death
* On the plus side, can also be used as a floor wax, de-icer, and industrial solvent
"I can't easily think of a situation in which you would feel the same about IBM. For one thing, it wouldn't be cheap."
What if you have an itch that you just can't scratch and it involves being surprised by large men and then brutally sodomised by extremely large objects without any chance of lubricant.
In that case you just can't beat an IBM licencing audit
Not sure what IBM is going to do now, they have already cut pay, give no increases for years, cut coffee and milk, no more phones, no internet for workers at home, stationary and pencils for staff, and moved the majority of their staff to India, sold off all their hardware manufacturing, got rid of their contractors, stopped servicing their paying clients, can't even generate a Purchase Order, until 5 man months of effort have been expended first jumping through procurement hoops and its been pushed back to the next quarter, all they have left now is that fluff called Watson which requires customers so spend a small fortune with hundreds of little blue men programming it before it can even say "hello" let alone do anything useful.
Oh, they also still have that "fluff" called Ginni. Maybe they will finally get rid of her now.
Warren must be really pissed of that she canned his promised EPS of $20 per share a couple year and gave herself a big bonus to boot.
"Going against his own received wisdom of not buying stakes in companies he doesn't understand"
Disregarding that, presumably the crux is that the only judgement he - or anyone else - can wield is that they think they understand a company. The evidence in this instance is that he may have thought he understood it but didn't. This seems to have been an exception for him.
An exercise for the reader: what would markets look like if everyone really did understand all the companies all the time?
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