I don't know tech; I do know great businesses
More than 13 years ago, as the tech bubble was just getting inflated, Buffett told shareholders that he admired Microsoft
Mr. Softy has underperformed the Dow Jones Industrial Average
So why is the Oracle of Omaha getting on the IBM bandwagon today? After going through his subsidiaries' data-center operations, IBM's business came out looking strong. But more importantly, he's simply impressed by management's candid conversation with shareholders.
Buffett told CNBC about the "terrific reverence" with which IBM treats it investors. "They're honest with their shareholders. They tell their shareholders what they expect to accomplish, they expect to be held to it." And it's done in great detail: "They laid out some very specific things they expected to accomplish. I really compliment the management on that."
Anything you can do, we can do better
That attitude is rare in tech circles. Apple
The clearly communicated strategy involves "exiting commoditized segments while increasing its presence in higher-value areas such as services, software, and integrated solutions." It's a long-term move away from "point products" and toward "integrated solutions," where IBM gets to sell a whole stack of solutions to every customer.
The success of this not-so-secret strategy has invited carbon copies, of course. Oracle
In fact, Buffett believes that IBM's openness would be exceptional in any industry. "I don't know of any large company that really has been as specific about what they intend to do and how they intend to do it as IBM," he said. "They did that five years ago, and they've done it ever since."
Business is one thing, investing is another
The investment itself was something less than candid. Buffett has been buying IBM shares since March, probably asking the SEC for permission to keep the transactions under wraps along the way. Moreover, Berkshire hasn't "talked to anybody at IBM whatsoever" about becoming one of the company's largest shareholders. This is news for IBM.
With a 5.5% stake (which triggers requirements for SEC disclosure of 5% ownership), Berkshire catapults past second-largest investor BlackRock and runs neck-and-neck with big Kahuna State Street. With the cat out of the bag, IBM jumped as much as 1.3% on a gloomy market morning.
I'd imagine that opportunistic investors would have latched onto Buffett's Big Blue plans to drive prices higher and create a larger price boost than that, had his actions been known. Keeping this market-moving investment under wraps as long as possible may not match the qualities that drew Buffett to IBM in the first place, but it's admittedly smart money management. Now Buffett says that he's "done" buying IBM unless surplus Berkshire capital happens to meet low IBM prices again.
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