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What Was Really Behind Warren Buffett’s Big Stake in IBM?
by Pam Martens and Russ Martens, Wall Street On Parade:
On Thursday of last week, legendary investor Warren Buffett, CEO of Berkshire Hathaway, told CNBC that his company had sold about one-third of its big stake in IBM during the first and second quarters of 2017. From a position of approximately 81 million shares of IBM, Berkshire’s stake is now believed to be in the 50 million share range. Buffett said he no longer values IBM the same way he did in 2011 when he began acquiring his large position.
The big puzzle for Buffett watchers is why he ever bought IBM. A simple glance at the stock’s long-term chart shows the company has been an underperformer for a very long time.
Back in 2013, Wall Street On Parade compared the performance of IBM, a tech company, to that of Procter and Gamble, a presumably less-sexy household products company. We found the following:
“After 30 years, $1000 invested in Procter and Gamble grew by 2,168 percent to $22,684 – not including the cash it was paying you in dividends for 30 years. The same $1000 (actually $976) invested on the same date 30 years ago in IBM, grew to a measly $8,467 or 767 percent – and that’s with the dividend reinvested…”
Both Procter and Gamble and IBM provide the public with stock performance calculators on their web sites. You can do the math yourself, selecting various start dates. This morning, we put in a start date of May 5, 1987 at IBM’s calculator – 30 years from this past Friday’s close. It showed a return of 519.59% and that’s with dividends reinvested. Procter and Gamble has delivered more than four times that return with dividends reinvested.
We’re a bit skeptical of Buffett’s foray into IBM because of his past White Knight adventures into downtrodden stocks. Back in 1987 Buffett took a $700 million stake in Salomon Brothers’ convertible preferred stock, giving him an approximate 12 percent stake in the company. A short four years later, top executives were under investigation for concealing efforts by traders to rig the U.S. Treasury auction. Buffett stepped in as Interim Chairman of Salomon to save the company.
This is how Linda Grant, writing for the Los Angeles Times, described the situation on August 16, 1991:
