Dear Mr. Berko: How many shares of IBM does Warren Buffett own? I was told to buy IBM because it’s one of his largest positions and it pays a good dividend. My broker says IBM can trade as high as $275 in the next 12 months and wants me to buy 500 shares. I’d like your take on this.
— G.S., Bloomsburg, Pa.
Dear G.S.: If you believe IBM can trade at $275 this year, please consider cutting back on those “happy chemicals” that embellish your perceptions. I didn’t like International Business Machines in 2009 when it traded at $100 a share. I didn’t like IBM in 2013 when it traded at $215. And I didn’t like IBM late last year at $169 when I wrote a “don’t buy” column on the stock. IBM has been a drag on the Dow Jones Averages since June of 1979, when it was first included in the Index. According to Bloomberg’s Jim Cao: Since IBM was added to the Index, “it’s grown just 17-fold compared with more than 60-fold for the Dow.”
And I don’t like IBM today as it trades at $133. Though Berkshire Hathaway’s 81 million shares of IBM cost $13 billion, it’s the fourth-largest position in Buffett’s portfolio behind: No. 1 Wells Fargo, worth $22.7 billion, No. 2 Coca-Cola, worth $16.8 billion, and American Express, worth $13.4 billion. Buffett began buying IBM in early 2011 at $159 and throughout the year, paying between $159 and $173 per share. And in 2012, Buffett paid as high as $197 for the stock. So far, Berkshire has $2.2 billion in unrealized losses on its IBM investment. While I have abiding respect and reverential admiration for Buffett, I doubt IBM can generate enough good news to push itself past the $200 mark late in 2016. Is it possible that your broker said, “IBM can trade as high $175 (not $275) in the next 12 months?” Still, I doubt it can return to $175.
This century-old Blue Chip survived the Great Depression, World Wars I and II, the explosive dot-com bubble and the “Great Market Collapse” between 2007 and 2010. And it’s interesting to note that during WWII, IBM assisted the Nazi regime by designing special punch-card machines giving the Third Reich critical information technologies in its war efforts against Allied forces. And Thomas Watson, IBM’s vaunted CEO, met with Hitler in 1937 to discuss IBM’s continued participation with the German government. Even after the outbreak of the war, IBM continued to conduct business with the Third Reich. Proof that profits don’t have a conscience or nationality.
