IBM Means, "Invest Big Money" for Buffett

Joel Anderson  |

Billionaire Warren Buffett revealed this morning that his company, Berkshire Hathaway (BRK.A), purchased 64-million shares, equating to a $10.7 billion stake in IBM (IBM) in the third quarter. The purchase makes Buffett one of IBM's largest shareholders with approximately 5.4 percent of total shares.

The most recent earnings reports from Berkshire Hathaway revealed that Buffett went on a major spending spree in the third quarter of 2011, buying up $15 billion in equities. Now, Buffett has revealed that the majority of that came from his new faith in IBM. Buffett, during an interview on CNBC, cited IBM's reliability and the relative inertia of their position in the market as factors in his decision. Buffett recalled marketing competing technology to companies decades ago only to hear a common response: "[Every] time we went into a place to sell them ... at a lower price and with better delivery than IBM, the purchasing agent would say, 'Nobody's ever gotten fired [by] buying from IBM.' I mean, we probably heard that about a thousand times." Buffett built on this idea of the safety of choosing and then remaining with IBM in the interview, saying, "We work with a given auditor, we work with a given law firm. That doesn't mean we're happy every minute of every day about everything they do, but it is a big deal for a big company to change auditors, change law firms. The IT departments ... there's a lot of continuity to it."

Buffett wasn't the only highly touted investor to recently express bullish opinions on a major tech company. David Einhorn of Greenlight Capital (GLRE) revealed some of his investment strategies in a recent letter to shareholders, and one thing that didn't change was that shares in Microsoft (MSFT) continued to be among his biggest holdings. Einhorn, who has been touted highly of late for very public, very successful shorts of Lehman Brothers and Green Mountain Coffee Roasters (GMCR), has held a large position in the company for over five years, once calling it the "A-Rod" of the stock market, in its prime and at the top of its game. While the baseball metaphor is arguably less apt than it once was, Einhorn's confidence in the company hasn't wavered.

The positions taken by Buffett and Einhorn appear to be fairly similar in several ways. They've both invested for the long term, and they both expressed confidence in the foundation the respective companies are built on. What's more, both men cited buyback programs have protected shareholders, stating that the companies appear to protect their investors. However, what appears to attract Einhorn and Buffett to these tech giants appears to be an old-fashioned belief in consistency.

Buffett defended his decision to buy IBM stock despite it being at an all-time high on CNBC, saying that he was amazed that so much of the company's stock was changing hands. "So here you have 11 percent of a huge company change hands and all kinds of people who've owned IBM forever," he said. "I mean, it's an [old] company, it's a big company, it's amazing to me how much turnover there is in stocks, which means that, you know, investment has kind of gone by the boards and people just basically look at stocks as things to speculate in."

Einhorn expressed similar confidence in Microsoft during a May 25th speech at the Ira Sohn Conference. Einhorn, like Buffett, appeared to believe that the inherent value in a company like Microsoft was overlooked by short-term investors. "Microsoft’s business has been much stronger than the average company in the S&P over the last five years," he said. "Revenues have grown nearly 4 times faster at Microsoft, EPS has more than doubled, while S&P’s have grown only a few percent. Microsoft has also almost doubled its dividends. ...  Certainly Microsoft isn’t getting credit for some of its achievements and prospects."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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