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Berkshire now owns 5.5% of IBM !


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about 10.7$ billion of IBM.. has 5.5% stake !

 

He finally bought after more than 80 years of observation (BG and WEB combined).  I guess IBM's long term competitive advantage has now been established satisfactorily after a century of successful operation, as the other long term holdings mostly have 100 year track records with excellent returns.

 

Interestingly, my brother in law used to work for IBM.  He says that IBM's new CEO is the very best manager he has ever seen.

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I worked for IBM for 10 years. If IBM is entrenched in large corporations around the world and growing in emerging markets, so is Microsoft, perhaps more so.

 

Even though I am a big IBM fan, I believe MSFT is a better value than IBM at this stage.

 

If we ever get IP protection in China, MSFT so do exceedingly well just off  official sales in China versus the current rampant piracy.

 

 

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That might be true, but IBM isn't growing, revenue has been mostly flat, a large part of growth in earning per share has come from share buy back.

 

I'm disappointed that he bought that much, maybe he run out of ideas!

 

about 10.7$ billion of IBM.. has 5.5% stake !

 

He finally bought after more than 80 years of observation (BG and WEB combined).  I guess IBM's long term competitive advantage has now been satisfactorily established after a century of successful operation, as the other long term holdings mostly have a 100 year track record with excellent returns.

 

Interestingly, my brother in law used to work for IBM.  He says that IBM's new CEO is the very best manager he has ever seen.

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I worked for IBM for 10 years. If IBM is entrenched in large corporations around the world and growing in emerging markets, so is Microsoft, perhaps more so.

 

Even though I am a big IBM fan, I believe MSFT is a better value than IBM at this stage.

 

 

Buffett may agree with you, for all we know:

 

http://fundmanagernews.com/buffett-microsoft

 

He flat out said on CNBC this morning that he thinks MSFT is attractive but won't buy any or let Ted or Todd buy any as well, because of his relationship with Billg.

 

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That might be true, but IBM isn't growing, revenue has been mostly flat, a large part of growth in earning per share has come from share buy back.

 

I'm disappointed that he bought that much, maybe he run out of ideas!

 

about 10.7$ billion of IBM.. has 5.5% stake !

 

He finally bought after more than 80 years of observation (BG and WEB combined).  I guess IBM's long term competitive advantage has now been satisfactorily established after a century of successful operation, as the other long term holdings mostly have a 100 year track record with excellent returns.

 

Interestingly, my brother in law used to work for IBM.  He says that IBM's new CEO is the very best manager he has ever seen.

 

The lukewarm reaction of the market based on Brk's price decline today seems to indicate that there is more a sense of disappointment than excitement on the IBM purchase. It reminds me ( at a smaller scale of course) of the BNSf  purchase. Plenty of doubters (He lost his mind was some of the chorus). It did not take long to prove them wrong. All the naysayers then are wishing  we are forgetting who they were.  I guess Buffett is used to it and enjoys it. I certainly do. Such is the life of a contrarian.

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That might be true, but IBM isn't growing, revenue has been mostly flat, a large part of growth in earning per share has come from share buy back.

 

I'm disappointed that he bought that much, maybe he run out of ideas!

 

about 10.7$ billion of IBM.. has 5.5% stake !

 

He finally bought after more than 80 years of observation (BG and WEB combined).  I guess IBM's long term competitive advantage has now been satisfactorily established after a century of successful operation, as the other long term holdings mostly have a 100 year track record with excellent returns.

 

Interestingly, my brother in law used to work for IBM.  He says that IBM's new CEO is the very best manager he has ever seen.

 

I'd classify its revenue history as more lumpy than flat as a result of steering the business in a more service-oriented direction. Here is the last ten years of revenue:

 

2010: $99.9 billion

2009: 95.8

2008: 103.6

2007: 98.8

2006: 91.4

2005: 91.1

2004: 96.3

2003: 89.1

2002: 81.2

2001: 83.1

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The IBM purchase also continues to diversify BRK nicely and this was likely one of the objectives.

 

When you look at the amount of money BRK has spent the past three years Buffett definitely likes valuations and believes better times are ahead (perhaps not next week but in the coming years).

 

During the past 18 months BRK has done a number of things to give investors more confidence in the company post Buffett:

1.) made large, diversified investments (reduced the huge cash holdings)

2.) continued to build bench

3.) announced parameters for future stock buybacks

 

If I had to pick one stock today (to put all my net worth in it) and hold it for the next 10 years I would pick BRK. Looks to me to be a solid 8%'ish grower per year (in book value) with better upside for stock price (at current levels).

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IBM is doing very well and has plans to earn $20 per share by 2015. Over the last 10 years they have transformed the company into a service oriented business with substantial reoccurring income. They have plenty of cash and plan to add $1 per share in earnings annually thru smaller bolt-on acquisitions. 

 

It seems to me In the past several years Buffet has been investing in leading, steady revenue and income companies--utilities, railroad, tech service, etc.  By reinvesting the cash flow he is compounding at a steady rate, which will likely exceed the S&P 500's growth rate. He doesn't need home runs because he has the power of compounding at work vs the sporadic management moves and miscues of the S&P 500 CEOs.

 

Seems like a market-beating strategy to me!

 

I'm long IBM

 

 

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  • 2 weeks later...

Level 3 had the opportunity to take advantage of IBM's innovation before Berkshire Hathaway bought IBM shares. Indirectly Berkshire Hathaway is deepening a relationship with Level 3, and will reap all the benefits that the collaboration of cross-license patent agreements bring.

 

Level 3 Communications, Inc. (NYSE: LVLT) and IBM (NYSE: IBM)

Announced that the companies recently entered into a long-term patent cross-license agreement.

 

Under the terms of the agreement, IBM granted Level 3 licenses to IBM's approximately 42,000 pending and issued patents which cover a broad range of telecommunications services and technologies. In turn, Level 3 granted IBM licenses to those of Level 3's more than 850 pending and issued patents which cover a broad range of information handling systems. The licenses will last as long as the lives of the respective patents. Other terms of the cross-license agreement were not disclosed.

 

"We have long admired IBM's legacy of innovation," said Jack Waters, chief technology officer of Level 3. "This patent cross-license agreement provides Level 3 the opportunity to take advantage of IBM's innovation as we continuously expand the range of services we provide our customers."

 

"IBM enjoys a widely recognized reputation of innovation and invention for technologies related to telecommunications, networking, media and entertainment," said Dan Cerutti, IBM's general manager of intellectual property. "With this cross license, we look forward to deepening our relationship with Level 3, and reaping with them all the benefits of collaboration."

 

Feb. 28, 2008:  http://www.prnewswire.com/news-releases/level-3-and-ibm-announce-patent-cross-license-57344172.html

 

 

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I do not understand this purchase.  When I bought IBM at $60 a share in 2003, I thought it was definitely undervalued then.  At $160 now??  What is the guru thinking???  First, for those of you who keep saying IBM is transforming itself into a services company just don't understand this company and shouldn't invest in it.  IBM has been getting away from services and into software where its profit margins have always been the fattest by a sizable amount.  I know that since 2003, IBM have been slowly moving away from services as its key driver (just watch some old Palmisano corporate strategy videos where he explicitly says this) to software.  Also, even if it was to orientate itself into a services firm, where would their growth areas be?  That field is heavily saturated.  IBM's strategy in the past several years, to eek out more margins in services since organic growth wasn't happening anymore, was to cut domestic services and rely more on outsourcing.  There was an internal project called Project Lean that has been (or currently still is) implemented in IBM to reduce services personnel in the U.S. to over seas accounts.  You can infact see this from their employment profile.  Employees, especially in services, in the U.S. has been reduced by around 40%!  However, their overall worldwide employee base has not changed!  That's pretty telling on how IBM is trying to drive more margin out of services.

 

Anyways, I could go on and on.  I think this was probably the first buy from WEB that made me go, WTF????

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Personally, I think that the way that this baffles most people goes to show how nimble Warren Buffett is. Plus, if any of us were managing as much as Buffett, I would hope that we would be able to occasionally shock the people that look to us for investment advice.... After all, that is what gives him an edge.

 

People have always been shocked by things that he has done. It's just that in the rear view mirror, we thought that we understood it. The Buffett of today very different from the Buffett of 1960, 1980, or even 2000.

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But the software they are buying helps the recurring service revenue stream and visa-versa.  If you think in terms of recurring revenue streams in makes alot of sense.  IBM will provide the software and services the customer wants and will bundle everything together with 3rd party hardware to automate the customers processes.  The commodity area of hardware is where IBM has reduced its focus.  The core process automation is where the recurring revenue comes from.  This was the same business 10-years ago and will be the same in 10-years (just different hardware, maybe software and the same service).  The other cheap software company is MSFT which would probably be purchased excpet for WEB friendship with BG. 

 

Packer

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