We’re Keeping IBM … We’re Avoiding IBM

Posted on May 5 2017 - 11:22am by Dan

So I suppose the buzz this morning in the equities space, is that Warren Buffet announced they trimmed their IBM holdings.  From what I have read, it seems he is keeping 2/3 of their position with IBM. Naturally … financial media sources took that news, and blew it up in the most sensational manner possible.

In the pre-market, IBM sold off, I think it was over 4%.  At the time of this writing, it’s recovered about half of that since the open.

What is our stance?

What anyone decides to do with IBM is risk, portfolio, periodicity, and process dependent.  What Warren Buffett is doing with IBM?  For the most part?  I find it an ‘interesting conversation piece’.  But that is about it.  It does not impact my decision making process in the slightest.  Not at all.  

IBM runs a Technology and Cloud Space business, and have been switching more to this business model, in an attempt to achieve higher profit margins.  The last time I looked, Technology and Cloud Service represents about 21% of their current market cap.  And in said cloud space, IBM has been getting beaten like a red-headed step child by Microsoft (MSFT) and Amazon (AMZN).  This has gone on for some time.  

As I was saying at the outset, what someone decides to do with IBM is both risk, portfolio, periodicity, and process dependent.  For our own valuation process? We are not yet buying IBM.  Not at all.  In fact, I’d go so far as to say that we are avoiding IBM.  I’ve said that for almost two years now. That is one process.

But in our separate Long Only, Equity Income Process?  In other words, what you see publicly in the free Sharpe Income Project that we run here at Sharpe Trade?  That’s a separate process and we are thus keeping IBM.  We’re nearing 10% in terms of the yield we’ve received for what we laid out.  

On a 5 year basis, the fact that a noted Investor like Mr. Buffett keeps 2/3 of his position, revalues the variables in play, and sells off 1/3 off a nice rally should be completely meaningless on a 5 to 10 year time frame.  I could care less.

1 Comment so far. Feel free to join this conversation.

  1. Anonymous May 5, 2017 at 1:13 pm - Reply

    IBM announced recently a dividend increase of $0.10 per quarter from $1.40 to $1.50.

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