Warren Buffett's Company Invests in IBM
In an interview on CNBC on Monday, Warren Buffett said that his company, Berkshire Hathaway, has now a sizable stake in IBM. For 10.7 billion dollars they now own just over five percent of IBM. Berkshire paid an average of about $170 per share for the IBM stock, which it has accumulated since March.
International Business Machines Corp., based in Armonk, N.Y., says it plans to continue growing its software business and invest about $20 billion in acquisitions between 2011 and 2015. IBM predicts that its operating earnings per share will top $20 by the end of 2015.
IBM shares gained $1.71 to $189.09 in morning trading, approaching its 52-week high of $190.53 reached in mid-October.
Berkshire Hathaway in the past has refused to invest in high tech companies because it is felt that it is too difficult to predict which technology businesses will prosper in the long term.
Besides investments, Berkshire owns roughly 80 subsidiaries including insurance, railroad and utility firms. Their no frills website reflects a company that stands for basic values rather than glamor. This is perhaps best reflected in the Owner's Manual (pdf) on the website which sets out Warren Buffett's views on how the company should operate.
Buffett mentioned that they had also been investing in Wells Fargo which would appear to be a much more traditional company for them. Their investment strategy is to buy into companies for the long term when they feel a superior return will be achievable and maintained.
IBM is perhaps a prime example of a high technology company. Here is how they describe their strategy.
Continued on the next page
IBM's business model
The company's business model is built to support two principal goals: helping clients succeed in delivering business value by becoming more innovative, efficient and competitive through the use of business insight and information technology (IT) solutions; and, providing long-term value to shareholders. The company's strategy is to focus on the high-growth, high-value segments of the IT industry.