oddballstocks Posted October 20, 2014 Share Posted October 20, 2014 I think if anything this just shows how limited he is in what he can buy. His pool of potential purchases keeps shrinking, so he's buying the best of what's available, but it's really not that great compared to smaller companies almost everyone else can buy. Interestingly enough, IBM is in the same spot. They continue to do these bolt-on acquisitions to grow into new markets, but what they're buying isn't large enough to move the needle. They need to eat more and more smaller companies to get the same growth. It wouldn't surprise me if we start to see IBM spinning off portions of itself in the next few years. They have sold divisions, the next step is for someone to come in and say "we're a xyz company, let's dump the rest" and unwind the ball of wax. If anyone wants a glimpse of IBM's complexity do this simple exercise. Pull a list of 10 IBM products and then go and try to find their support documentation on their website. Link to comment Share on other sites More sharing options...
thefatbaboon Posted October 20, 2014 Share Posted October 20, 2014 I was talking about stock picks - not buying the railroad. You'll note also I excluded banks and preferrerd...BAC was both. Anyway - I have a lot of my net worth in BRK and I'm very comfortable with that because these 1-10bn positions are not material to BRK. Just pointing out something I think has been fairly obvious for a while: excluding banks and preferreds Buffett minority stock positions have seriously underperformed the market. Link to comment Share on other sites More sharing options...
KCLarkin Posted October 20, 2014 Share Posted October 20, 2014 Okay, now I am excited. Link to comment Share on other sites More sharing options...
Kraven Posted October 20, 2014 Share Posted October 20, 2014 Has Buffett lost his touch? Is he going senile? Should we all avoid his holdings and sell Berkshire?! Don't think so...maybe a bit lazy...COP, KFT, JNJ, IBM, TSCO...other than the banks and the preferreds his picks have been pretty mediocre over the last decade or so. Ya, BNSF was not one of the greatest investments in history...no, no. Don't forget the Bank of America deal... Don't forget Sanborn Maps, See's and Washington Post. Link to comment Share on other sites More sharing options...
Liberty Posted October 20, 2014 Share Posted October 20, 2014 Has Buffett lost his touch? Is he going senile? Should we all avoid his holdings and sell Berkshire?! Don't think so...maybe a bit lazy...COP, KFT, JNJ, IBM, TSCO...other than the banks and the preferreds his picks have been pretty mediocre over the last decade or so. Ya, BNSF was not one of the greatest investments in history...no, no. Don't forget the Bank of America deal... Don't forget Sanborn Maps, See's and Washington Post. I hadn't seen the "other than banks" part. Oops. Link to comment Share on other sites More sharing options...
Palantir Posted October 20, 2014 Share Posted October 20, 2014 Has Buffett lost his touch? Is he going senile? Should we all avoid his holdings and sell Berkshire?! Don't think so...maybe a bit lazy...COP, KFT, JNJ, IBM, TSCO...other than the banks and the preferreds his picks have been pretty mediocre over the last decade or so. Ya, BNSF was not one of the greatest investments in history...no, no. Don't forget the Bank of America deal... Don't forget Sanborn Maps, See's and Washington Post. Or KO, we have to mention Buffett buying KO somewhere. Link to comment Share on other sites More sharing options...
thefatbaboon Posted October 20, 2014 Share Posted October 20, 2014 Anyway, it was a passing comment and I did not mean to hijack IBM. Don't even know where to start with IBM - it's impossible to keep track of all their adjustments and definitional changes. Last year they used taxes to bail themselves out of a $2 EPS miss. This year with the massive front loaded share repo and the "workforce rebalancing" and the results in q1 and q2 I thought they had a decent shot at the $18 target and $20 next year. But instead their business seems to have gotten hit everywhere this quarter: services, software and hardware. IBM seems to have one never ending list of excuses and adjustments to adjustments...and their conference calls are straight out a of Dilbert sketch. Link to comment Share on other sites More sharing options...
Zorrofan Posted October 20, 2014 Share Posted October 20, 2014 Anyway, it was a passing comment and I did not mean to hijack IBM. Don't even know where to start with IBM - it's impossible to keep track of all their adjustments and definitional changes. Last year they used taxes to bail themselves out of a $2 EPS miss. This year with the massive front loaded share repo and the "workforce rebalancing" and the results in q1 and q2 I thought they had a decent shot at the $18 target and $20 next year. But instead their business seems to have gotten hit everywhere this quarter: services, software and hardware. IBM seems to have one never ending list of excuses and adjustments to adjustments...and their conference calls are straight out a of Dilbert sketch. I just don't see the moat in IBM. New technology is constantly emerging and frankly the company doesn't seem to be growing, it has been using share buybacks and financial engineering to hit its targets......Maybe WEB should stick with Tesco and sell IBM instead, IBM might be his big mistake? cheers Zorro Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 20, 2014 Share Posted October 20, 2014 Nice little backlog to work with: The estimated services backlog at September 30, 2014 was $128 billion, down 7 percent year to year adjusting for the divested customer care outsourcing business (down 2 percent, adjusting for currency). " Link to comment Share on other sites More sharing options...
oddballstocks Posted October 20, 2014 Share Posted October 20, 2014 Not sure if anyone here reads Hacker News (news.ycombinator.com). There is a thread about this on there, a few quotes. Keep in mind the site is mostly developers, and people involved in startups. "I read Cringely's recent book about IBM and it sure makes the case that IBM is in a world of trouble. I can't say whether or not he's right, but what good software has come out of IBM recently? Eventually a tech company needs to be good at tech, no matter how great your sales guys and brand reputation." "you are assuming here that IBM is a tech company. It isn't. It is a financial engineering company. And the problem is that there is only so much you can do in this space (otherwise you become like Enron)." "Yep, they've been steadily ditching parts of their business for years now. This is just the short-sighted thinking coming home to roost. IBM R&D just isn't what it used to be and a company that isn't making new things, isn't going anywhere." Link to comment Share on other sites More sharing options...
oddballstocks Posted October 20, 2014 Share Posted October 20, 2014 Here's the referenced book: http://www.cringely.com/2014/06/04/decline-fall-ibm/ Link to comment Share on other sites More sharing options...
Palantir Posted October 20, 2014 Share Posted October 20, 2014 ^To me though, I feel the above was part of the attraction to IBM, WEB saw it as a services firm rather than a tech firm. Talking to an IBM employee relative it seems that they are a big labor pool of consultants that primarily make a profit off the large installed base of users who can't switch out. I can see how this could be an OK investment and in the context of investing through a leveraged entity a potentially very good one, but for the average investor, don't see the attraction. I guess people just see the buybacks and their "commitment to increasing shareholder value"....seductive. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 20, 2014 Share Posted October 20, 2014 Interesting to compare the business models & valuations of Accenture vs IBM. I am not opposed to IBM shedding cap intensive hardware businesses to focus more on consulting and software. In addition to leveraging their large IP portfolio. Link to comment Share on other sites More sharing options...
Picasso Posted October 20, 2014 Share Posted October 20, 2014 If Buffett was not in IBM, where do you think shares would be trading right now? I assume a "bit" lower than $170. I think most investors today in IBM are only there because of Buffett. This has probably led to a higher valuation than would otherwise be the case. Although 10x earnings is not exactly expensive. This seems to be falling into Buffett's "I'll make more money if the share price falls." We'll see how well that works out. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 20, 2014 Share Posted October 20, 2014 10 x earnings is inexpensive, if you have a multi-year time horizon. Not hard to come up with a valuation north of $200 even after today's news. This seems like a panic to me. Link to comment Share on other sites More sharing options...
thefatbaboon Posted October 20, 2014 Share Posted October 20, 2014 Whats strange here is that in the context of IBM's last two years of serial disappointments this quarter's revenue decline is to be expected but this quarter there has been a serious decline in pre-tax income for software and services, and I for one was not expecting that at all. Up until now I could hold my nose at their stupid tax gimmicks ignore the noise around the crappy server business and look underneath and still be fairly comfortable with the value in software and services. Sure, they weren't really growing and one had to just ignore all their bullshit management speak about growth markets and strategic imperatives. But this quarter is weird because margins seem to have started collapsing and pre tax income for GTS fell 11%, GBS fell 15% and Software fell 3%. And this is on a ex currency and ex divestment decline in total revenues of 2%. I'd really like to know how that happened. Link to comment Share on other sites More sharing options...
no_free_lunch Posted October 20, 2014 Share Posted October 20, 2014 If the earnings are believable it is cheap but there is this constant stream of charges. If the charges are continuous then they need to be included. Maybe the charges are just a part of the business IBM is in, maybe we shouldn't exclude them. Including the one-time charges earnings were about 2 cents. So from that perspective, not so cheap. Link to comment Share on other sites More sharing options...
frommi Posted October 20, 2014 Share Posted October 20, 2014 IBM is only cheap when they can stabilize cashflow, but currently it looks like its fading away every quarter. A year ago i was under the impression that its only the hardware business that made problems and that their software biz is growing every year. But it looks like that is not the case any more. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted October 20, 2014 Share Posted October 20, 2014 Gotta love CNBC: http://video.cnbc.com/gallery/?video=3000321599 Link to comment Share on other sites More sharing options...
Palantir Posted October 20, 2014 Share Posted October 20, 2014 I like how they paid GF 1.5B to "buy" the semiconductor business. ROFL. Link to comment Share on other sites More sharing options...
valueyoda Posted October 20, 2014 Share Posted October 20, 2014 Remember how a lot of value investors thought that HPQ was cheap at $35 in 2011 based on p/e ratios and share buybacks. Unfortunately, IBM's current free cash flow will be in jeopardy for quite some time to come, and it has stretched its balance sheet to the max so that buybacks and acquisitions will be limited. Link to comment Share on other sites More sharing options...
portfolio14 Posted October 21, 2014 Share Posted October 21, 2014 IBM is a decent services business in long-term. What both the management and the market miss is the profile of CF when you need to invest to create new platforms. In their case, cloud. The CF will look like a hi-tech startup. Positive CF will be years away in the future. So, it's been suicuidal to commit themselves to EPS targets. Hence all those accounting manuveurs to boost EPS in order to keep their promises. The time to consider IBM is when they ditch those targets. We are getting close. Link to comment Share on other sites More sharing options...
stahleyp Posted October 21, 2014 Share Posted October 21, 2014 If Buffett was not in IBM, where do you think shares would be trading right now? I assume a "bit" lower than $170. I think most investors today in IBM are only there because of Buffett. This has probably led to a higher valuation than would otherwise be the case. Although 10x earnings is not exactly expensive. This seems to be falling into Buffett's "I'll make more money if the share price falls." We'll see how well that works out. Well, he owns 7% of the outstanding shares so, yeah, I do agree that if he were out of it the shares would be a bit lower. However, who is following him? It looks like the largest institutional shareholders are indexers - Vanguard, State Street and Blackrock. In fact, I only see one actively managed mutual fund that holds a half decent stake - MEIAX (and even that is less than a 2% holding) Do you really think retail investors would be enough to move the needle? Based on what I see I disagree that "most investors in IBM are only there because of Buffett". I see no reason to think that. Link to comment Share on other sites More sharing options...
Picasso Posted October 21, 2014 Share Posted October 21, 2014 If Buffett was not in IBM, where do you think shares would be trading right now? I assume a "bit" lower than $170. I think most investors today in IBM are only there because of Buffett. This has probably led to a higher valuation than would otherwise be the case. Although 10x earnings is not exactly expensive. This seems to be falling into Buffett's "I'll make more money if the share price falls." We'll see how well that works out. Well, he owns 7% of the outstanding shares so, yeah, I do agree that if he were out of it the shares would be a bit lower. However, who is following him? It looks like the largest institutional shareholders are indexers - Vanguard, State Street and Blackrock. In fact, I only see one actively managed mutual fund that holds a half decent stake - MEIAX (and even that is less than a 2% holding) Do you really think retail investors would be enough to move the needle? Based on what I see I disagree that "most investors in IBM are only there because of Buffett". I see no reason to think that. I think my point is, would we be talking about IBM if Buffett was not involved? A lot of us are looking at it thinking "wow Buffett must see something everyone else is missing." I think this thought is pervasive and has some effect on the price people are willing to pay for the stock. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted October 21, 2014 Share Posted October 21, 2014 If Buffett was not in IBM, where do you think shares would be trading right now? I assume a "bit" lower than $170. I think most investors today in IBM are only there because of Buffett. This has probably led to a higher valuation than would otherwise be the case. Although 10x earnings is not exactly expensive. This seems to be falling into Buffett's "I'll make more money if the share price falls." We'll see how well that works out. Well, he owns 7% of the outstanding shares so, yeah, I do agree that if he were out of it the shares would be a bit lower. However, who is following him? It looks like the largest institutional shareholders are indexers - Vanguard, State Street and Blackrock. In fact, I only see one actively managed mutual fund that holds a half decent stake - MEIAX (and even that is less than a 2% holding) Do you really think retail investors would be enough to move the needle? Based on what I see I disagree that "most investors in IBM are only there because of Buffett". I see no reason to think that. I think my point is, would we be talking about IBM if Buffett was not involved? A lot of us are looking at it thinking "wow Buffett must see something everyone else is missing." I think this thought is pervasive and has some effect on the price people are willing to pay for the stock. I definitely agree that both the market as a whole and the average board member is valuing IBM higher than if WB had never invested. If WB had never invested, I wouldn't have spent nearly as much time as I have researching IBM; I probably would have stopped after the first 10k. I was even considering a small investment (my first hint this was a bad idea) as recently as last week. I definitely think WB has failed when he strays away from his principles. COP was bad luck but TSCO, IBM, and KFT. I'm not sure why JNJ is a failure? Did he just not make much? He has beaten the market considerably over any business cycle and his actions still seem reasonable to me so I wouldn't come close to writing him off, I just don't pay much attention to his investments that don't have wonderful business models (although this leaves a lot of risk itself). Link to comment Share on other sites More sharing options...
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