The Honeymoon phase for Warren and IBM* has come to an end. Buffet made headlines again last week as he sold a third of his stake in IBM. Buffett previously owned approximately 80 million shares and now only owns approximately 50 million shares, holy batman that is a lot of shares! And IBM’s stock went tumbling moments after this happened.
But why?
*Disclaimer: I worked for IBM from 2013 to 2015. This is by no means an endorsement and/or recommendation for or against IBM. This is just a mother orca teaching her calf how to hunt in the wild.
What is International Business Machine (IBM)?
IBM has been around for 100+ years. In technology, this is a very impressive milestone, especially because technology is always changing. IBM has, throughout the years, managed to change along with the times and keep themselves relevant in a very fast-paced environment. They started out in PC sales, invented many tech products including the punch card used in voting, and the QR codes we still see today. IBM has their hands in literally every Fortune 500 Company. The name “IBM” still carries a lot of weight in the industry, but the question now is, can they still adapt? With Cloud, Blockchain, AI and VR, can they still manage to keep up? Software has become a commodity and it’s cheaper than ever to acquire and develop. This has created intense competition in the marketplace and it has major investors like Warren Buffet questioning their own investments. In my opinion, somewhere along the line, they lost sight in being a tech company and became a shareholder company; appeasing the market by buying shares back and increasing their dividends, instead of their customers.
Warren and IBM’s Relationship
• Warren and IBM jumped into bed together in 2011, Warren backed Gini Romety (CEO) plan for IBM and started buying shares
• From 2011-2017 Warren bought almost 80 million shares! #sugardaddy
• Supported IBM through tough times when the stock dropped in 2015
• Ginni and IBM did whatever they could do to appease Warren and reward him for his confidence by focusing on the stock, buying back shares, increasing their dividends to prove to Warren they were a good buy
• Warren was not pleased with IBM having 20 quarters of decreasing revenue
• 2017, Warren lost confidence and without much warning started selling his shares. Almost a third of his shares have already been sold in 2017
• Warren “I don’t value IBM the same way I did 6 years ago when I started buying…they have run into some pretty tough competitors”
The After Effects
• IBM fell almost 10% after Warrens announcement
• Many investors that follow the Warrant Buffett approach, jumped ship with him
• Warren will continue to sell his shares when the IBM’s price stabilizes again
• The IBM management team no longer has the Warren Buffett protection they once had and we could see a change in the near future
What is Next?
• Warren Buffett is taking his talents and money elsewhere, rumor has it he is focusing on renewable energy
• IBM can now hopefully focus on being a tech company again; maybe make an acquisition or two? Personally, would love to see them take on Twitter or BOX
• Watch for IBM’s management team to change in the near future
• Many investors will be cautious to jump into IBM again until they make some bold moves
So, IBM was the latest casualty in a drastic move made by our godfather Warren Buffett. No one knows what his next move will be, but Orca will be ready to bring it to you as the news breaks.
