Why Warren Buffett Keeps Buying IBM

After reading about the company for 50 years without making a move and shunning the entire tech sector for the majority of his career, Warren Buffettsuddenly picked up over $10 billion in shares of IBM (IBM) recently for his company, Berkshire Hathaway (BRK.A)(BRK.B). Buffett said in Nov. 2011 on NBC when he announced owning a stake in the company that “he would not be announcing it if he were not pretty much done” buying shares. But over the next three quarters he has found the stock attractive enough to continue buying, making it the second most-bought stock in his portfolio, and causing investors to ask why. 

Purchasing History

Buffett began to buy IBM shares in the first quarter of 2011, with 4,517,774 shares for a price of $159 on average. Purchasing became more aggressive in the second and third quarter when he cumulatively bought more than 82.2 million shares for $167 and $173 on average. From the fourth quarter of 2011, to the third quarter of 2012, he made smaller purchases at average prices ranging from $185 to $197. 

By the end of the third quarter, he owned a total of 67,517,896 shares, which equals 5.98% of IBM’s shares outstanding. It also made the company an 18.6% weighting in Buffett’s portfolio. 

Why He Likes It

On CNBC in Nov. 2011, when he revealed the stake, Buffett discussed several of the reasons he chose the company: 

1. Management – Five-year business objectives met

2. Moat

3. Requirements for good business met

4. Share repurchases

Management – Business Execution

Buffett praised IBM CEOs Lou Gerstner and Sam Palmisano in his 2011 annual letter for rescuing IBM from the brink of bankruptcy 20 years ago and making it into a successful business today. In addition to their “extraordinary” operational accomplishments, “their financial management was equally brilliant,” Buffett said, “particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.”

IBM consistently uses “Road Maps” to create targets for the future and measure progress in the present. Buffett was impressed that the company had met its benchmarks for a plan introduced in 2007 called the 2010 Road Map, and in 2011 proved it is on its way toward the goals set forth in the 2015 Road Map that replaced it. In 2010, the company surpassed its 2007 goal of $10 to $11 in earnings per share by reaching EPS of $11.52 in 2010. 

The company’s 2015 map focuses on the major drivers of its earnings per share performance: operating leverage, share repurchases and growth strategies. Specifically, according to the company’s 10-K, highlights of the metrics it is aiming for include: 

· $50 billion in share repurchases

· $20 billion in dividends

· $20 in EPS (non-GAAP)

· $100 billion in free cash flow

· $20 billion spending on acquisitions

· Software becoming about half of segment profit

· Growth priorities:

1. Growth markets unit accounting for 30 percent of segment revenue by 2015 (it was 21 percent in 2010)

2. Analytics growth to $16 billion in revenue

3. $7 billion in revenue from cloud computing

4. Smarter Planet solutions to grow to $10 billion in revenue

In 2011, the company had achieved the following progress toward its 2015 goals:

· $3.473 billion paid in dividends (9.32% increase year over year)

· $15.05 billion in share repurchases

· $13.44 in diluted operating (non-GAAP) earnings per share (a record)

· $16.6 billion in free cash flow (a record)

· $1.8 billion for five acquisitions in software

· Software and services was 44% of segment profit

· Growth Priorities:

1. Growth markets accounted for 22% of geographic revenue (an 11 increase from 2000)

2. 16% revenue growth year over year

3. 200% revenue growth year over year

4. 50% revenue growth year over year

IBM said 2011’s positive financial performance resulted from the transformation it began year ago to shift the business “to higher value areas of the market, improving productivity and investing in opportunities to drive future growth. These changes have contributed to nine consecutive years of double-digit earnings per share growth.”

Some of the changes involved in the transformation include exiting its PC and hard disk drive businesses in time for the dramatic slow-down that would take place in those industries. It also introduced new businesses like products, services, skills and technologies into the mix. 

The focus on growth and investment in innovation allowed the company to enter new markets and delve into new waves in the technology sphere such as business analytics and cloud computing. 

Top 5 Stocks George Soros and Warren Buffett Both Own

George Soros and Warren Buffett are two of the world’s most successful investors. While Buffett holds stocks for the long term, Soros is more likely to trade in and out of positions with greater frequency.

Both of their viewpoints overlap on eight stocks. The largest positions they hold in common are: Walmart (WMT), Kraft (KFT), DirecTV (DTV), DaVita (DVA) and Johnson & Johnson (JNJ).


Walmart (WMT)
Warren Buffett owns 46,708,142 shares of WMT, valued as $3.3 billion as of June 30, 2012, which accounts for 4.4% of his equity portfolio. George Soros owns 4,831,800 shares of WMT, valued as $337 million as of June 30, 2012, which accounts for 4.9% of his equity portfolio.

Walmart Stores Inc. is the world’s largest retailer. Walmart Inc. has a market cap of $243.99 billion; its shares were traded at around $72.59 with a P/E ratio of 15.4 and P/S ratio of 0.6. The dividend yield of Walmart stocks is 2.2%. Walmart Inc. had an annual average earnings growth of 11.3% over the past 10 years. GuruFocus rated Walmart the business predictability rank of 5-star.

Walmart in its second quarter reported earnings per share increased 10.1% from the previous quarter, and revenue increased 6.4%, with its fourth consecutive quarter of positive comp sales. Net sales at Walmart International grew 6.4%. The company raised and narrowed its full-year EPS guidance to a range of $4.83 to $4.93 from its previous range of $4.72 to $4.92.

Kraft (KFT)
Warren Buffett owns 58,826,390 shares of KFT, valued as $2.3 billion as of June 30, 2012, which accounts for 3.1% of his equity portfolio. George Soros owns 361,000 shares of KFT, valued as $14 million as of June 30, 2012, which accounts for 0.2% of his equity portfolio.

Kraft Foods Inc. is the largest branded food and beverage company headquartered in the U.S. Kraft Foods Inc. has a market cap of $74.3 billion; its shares were traded at around $41.9 with a P/E ratio of 17.5 and P/S ratio of 1.4. The dividend yield of Kraft Foods Inc. stocks is 2.8%. Kraft Foods Inc. had an annual average earnings growth of 0.4% over the past 10 years.

On August 14, Kraft’s board approved the spin-off of its North American grocery business and declared a pro-rata distribution of shares of its holding company, Kraft Foods Group Inc., to Kraft Foods Inc. common stock shareholders. The spin-off will be complete on October 1. On that date, shareholders of Kraft Foods Inc. will receive one share of Kraft Foods Group common stock for every three shares of Kraft Foods Inc. common stock they hold.

Buffett sold almost 20 million shares of his Kraft stake in the second quarter, but said on Bloomberg in July that he will wait to see what each new company sells for, and will need more information to decide which he would invest in.

Warren Buffett Stocks with the Lowest P/E Ratios

Cheapness is a top characteristic Warren Buffett requires in companies he invests in, though they must also be high-quality companies. It makes sense then that his portfolio would contain quite a few low-P/E (price over earnings) companies. The lowest of the low are: General Motors Company (GM), ConocoPhillips (COP), Gannett Co. Inc. (GCI) and General Dynamics Corp. (GD).

A low P/E ratio indicates that while a company’s earnings have grown or remained flat, the price has not, for any number of reasons, and may later.

General Motors Company (GM)

Warren Buffett initiated a position of 10 million General Motors shares at an average price of $25 in the first quarter of 2012. The company has a P/E of 5.3, after a steady year-and-a-half P/E plunge.

GM, the world’s top-selling automaker, just returned to public trading on the NYSE in 2010, after filing for and emerging from Chapter 11 bankruptcy, with the help of the U.S. government. Then, GM posted the largest annual profit in its history for 2011, with earnings of $7.6 billion. But with the government retaining almost 30% ownership, GM’s stock price showed only a mild reaction to the news.

In June, GM reported May sales were the highest monthly in 33 months. Consumers purchased 245,256 vehicles in the U.S., up 11 percent year over year, and the highest level since August 2009. Buick and GM sales both were up 19%, and Chevrolet was up 10%.

GM also reinstated its missing dividend on June 12. The payment will be $0.59375 per share quarterly on its Series B mandatory convertible junior preferred stock.

ConocoPhillips (COP)

Buffett has 29,100,937 shares of COP as of the end of third quarter 2012, after whittling down the holding from its peak of over 83 million in 2008. Its P/E is 6, a three-year low. ConocoPhillips’ P/E was around the high teens in 2010, then dropped to the high single digits in 2011 and dropped further still to the current level in the second quarter of 2012.

Prior to that news, on April 4, the company announced it would split into two by spinning of its downstream businesses and remaining an upstream company. The distribution of one share of Phillips 66 for every two shares of ConocoPhillips stock took place on April 30, 2012.

On April 24, COP announced that its first-quarter earnings of $2.9 billion were slightly down from $3.0 the previous year, which coupled with the decline in stock price produced a low P/E.

Warren Buffett's $50 Billion Decision

This article, by Warren Buffett, as told to Randall Lane, appears in the upcoming April issue of ForbesLife magazine, as part of its “When I Was 25″ series.

By Warren Buffett

Benjamin Graham had been my idol ever since I read his book The Intelligent Investor. I had wanted to go to Columbia Business School because he was a professor there, and after I got out of Columbia, returned to Omaha, and started selling securities, I didn’t forget about him. Between 1951 and 1954, I made a pest of myself, sending him frequent securities ideas. Then I got a letter back: “Next time you’re in New York, come and see me.”

So there I went, and he offered me a job at Graham-Newman Corp., which he ran with Jerry Newman. Everyone says that A.W. Jones started the hedge fund industry, but Graham-Newman’s sister partnership, Newman and Graham, was actually an earlier fund. I moved to White Plains, New York, with my wife, Susie, who was four months pregnant, and my daughter. Every morning, I got on a train to Grand Central and went to work.

It was a short-lived position: The next year, when I was 25, Mr. Graham—that’s what I called him then—gave me a heads-up that he was going to retire. Actually, he did more than that: He offered me the chance to replace him, with Jerry’s son Mickey as the new senior partner and me as the new junior partner. It was a very tiny fund—$6 million or $7 million—but it was a famous fund.

This was a traumatic decision. Here was my chance to step into the shoes of my hero—I even named my first son Howard Graham Buffett. (Howard was for my father.) But I also wanted to come back to Omaha. I probably went to work for a month thinking every morning that I would tell Mr. Graham I was going to leave. But it was hard to do.

The thing is, when I got out of college, I had $9,800, but by the end of 1955, I was up to $127,000. I thought, I’ll go back to Omaha, take some college classes, and read a lot—I was going to retire! I figured we could live on $12,000 a year, and off my $127,000 asset base, I could easily make that. I told my wife, “Compound interest guarantees I’m going to get rich.”

My wife and kids went back to Omaha just ahead of me. I got in the car, and on my way west checked out companies I was interested in investing in. It was due diligence. I stopped in Hazleton, Pennsylvania, to visit the Jeddo-Highland Coal Company. I visited the Kalamazoo Stove & Furnace Company in Michigan, which was being liquidated. I went to see what the building looked like, what they had for sale. I went to Delaware, Ohio, to check out Greif Bros. Cooperage. (Who knows anything about cooperage anymore?) Its chairman met with me. I didn’t have appointments; I would just drop in. I found that people always talked to me. All these people helped me.

In Omaha, I rented a house at 5202 Underwood for $175 a month. I told my wife, “I’d be glad to buy a house, but that’s like a carpenter selling his toolkit.” I didn’t want to use up my capital.

I had no plans to start a partnership, or even have a job. I had no worries as long as I could operate on my own. I certainly did not want to sell securities to other people again. But by pure accident, seven people, including a few of my relatives, said to me, “You used to sell stocks, and we want you to tell us what to do with our money.” I replied, “I’m not going to do that again, but I’ll form a partnership like Ben and Jerry had, and if you want to join me, you can.” My father-in-law, my college roommate, his mother, my aunt Alice, my sister, my brother-in-law, and my lawyer all signed on. I also had my hundred dollars. That was the beginning—totally accidental.

When I formed that partnership, we had dinner, the seven of them plus me—I’m 99 percent sure it was at the Omaha Club. I bought a ledger for 49 cents, and they brought their checks. Before I took their money, I gave them a half sheet of paper that I had made carbons of—something I called the ground rules. I said, “There are two or four pages of partnership legal documents. Don’t worry about that. I’ll tell you what’s in it, and you won’t get any surprises.

“But these ground rules are the philosophy. If you are in tune with me, then let’s go. If you aren’t, I understand. I’m not going to tell you what we own or anything like that. I want to get bouquets when I deserve bouquets, and I want to get soft fruit thrown at me when I deserve it. But I don’t want fruit thrown at me if I’m down 5 percent, and the market’s down 15 percent—I’m going to think I deserve a bouquet for that.” We made everything clear, and they gave me their checks.

I did no solicitation, but more checks began coming from people I didn’t know. Back in New York, Graham-Newman was being liquidated. There was a college president up in Vermont, Homer Dodge, who had been invested with Graham, and he asked, “Ben, what should I do with my money?” Ben said, “Well, there’s this kid who used to work for me.…” So Dodge drove out to Omaha, to this rented house I lived in. I was 25, looked about 17, and acted like 12. He said, “What are you doing?” I said, “Here’s what I’m doing with my family, and I’ll do it with you.”

Although I had no idea, age 25 was a turning point. I was changing my life, setting up something that would turn into a fairly good-size partnership called Berkshire Hathaway. I wasn’t scared. I was doing something I liked, and I’m still doing it.

From forbes.com

Related Books

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

The Warren Buffett Stock Portfolio: Warren Buffett Stock Picks: Why and When He Is Investing in Them

Creating a Portfolio like Warren Buffett: A High Return Investment Strategy

Boustead edges up on positive outlook

KUALA LUMPUR (APRIL 10): Boustead Holdings Bhd shares advanced on Tuesday after its group managing director Tan Sri Lodin Wok Kamaruddin said the company aims to grow the diversified group’s profit before tax (PBT) to RM1 billion and net profit to RM750 million in the next two years amid the expected improving prospects in all divisions.

At 12.14pm, Boustead added three sen to RM5.47 with 410,500 shares traded.

“Personally, I would like to see the group breach the RM1 billion mark for PBT within the next two years,” he said after the company AGM’s on April 9.

“If we can move revenue towards the RM10 billion mark this year, that will be a good achievement,” he said, adding that based on the first three months of 2012, the group’s prospects were looking very healthy.

For FY11 ended Dec 31, Boustead recorded a 14% increase in PBT to RM831 million from RM726 million a year ago. Its revenue rose 38% to RM8.6 billion from RM6.2 billion.

Lodin said the group was allocating some RM1.3 billion for its capital expenditure this year. The largest portion of RM400 million will be for the property division, RM300 million for plantation, RM200 million for shipbuilding, RM100 million for pharmaceuticals and the balance for other operating units.

Lodin expects the plantation division, which contributed 41% to the group’s bottom line last year, to exceed the RM300 million achieved in 2011 if the price of crude palm oil continues to be as strong at between RM3,000 and RM3,500.

By Surin Murugiah of theedgemalaysia.com

5 Easy Passive Income Method

Passive Income is the income that we earn with little effort involved. Having a multiple passive income will help you to create wealth and also let you to have more freedom in your life. Nowadays, many people are talking about financial freedom and one way to achieve it is to have multiple passive incomes which can cover the monthly expenses. For those people who still don't have any passive income, I think is time for you and your family to sit down and think about it. 

Please don't think that creating passive income is a difficult task and require a large amount of money. Actually it is fun and easy... even kids also can do it. Let me share with you 5 easy passive income methods you can start with... 

1. High Yield Saving Account 

Sometimes we might not notice what is our saving account interest rate because is it relative low. However, a 0.1% differences in long run will be a huge amount. Normally bank will give 0.1% - 0.3%. Let said, if you have 100,000 dollar in bank A with interest rate 0.1% and 100,000 dollar in bank B with interest rate 0.2%. If after 1 year you check at your account in bank A the amount will be 100,100 dollar and bank B the amount will be 100,200 dollar so we can see the difference is 100 dollar. With 100 dollar we can use it to buy stationary for our kids. 

2. Fix Deposit 

This is an investment tools created by bank, where customer agree to save some amount of money in the bank with a locking period and then customer will get a guarantee return. The return is normally between 2% - 4% per annual. No service and annual fee charge required. For example, just put 1000 dollar to fix deposit with a 1 year locking period and 3% return then after 1 year when your fix deposit maturity you will receive 1030 dollar which mean that you have a 30 dollar passive income. 

3. Unit Trust Fund Investment 

If you think Fix Deposit return is low maybe you can invest in some trust fund which give better return. These kinds of trust fund normally provide 6% - 20% return. However please carefully select the fund you going to invest because normally trust fund will have a annual fee charge. 

4. Stock Investment 

Stock investment is always treating as a favorite tool for passive income. The reason is because the access is easy and also the return can come from capital appreciation and dividend. However some might think stock investment is very risky. Well, with proper planning and analysis I think we can reduce the risk. One of the way to reduce the risk is to invest in dividend stock. This kind of stock can give 4% - 10% dividend. Normally dividend stock will have a good fundamental and strong management so if any market crash they still can withstand it. Examples of dividend stock in Malaysia are BAT, Dutch Lady, Digi, Public Bank, Nestle, Guinness, Carlsberg and Telekom Malaysia. 

5. Pension Fund 

Pension Fund is also one of the passive income that for longer term. The objective of Pension fund is to provide a measure of security for the retirement to its member. In some country pension fund is a compulsory saving scheme for all employees. Normally they can withdraw their pension fund after 55 years old. In Malaysia, we call it EPF (Employee Provident Fund). Pension fund will also use the fund to invest in stock equity and the profit they get will be share to members as a dividend. 

The above are some easy passive income method which require very little amount of money and time. Please start early and enjoy the passive income you earn. 

The Incredible 14 year old Who Bought a House

This girl already own a house when she 14 year old. What are you doing when you are 14 years old?? This girl has inspiring and motivate a lot of people. I think there are some financial values we can get from this girl. Please feel free to watch the video.

Lesson I get from this video is well prepared yourself before the opportunity come. She saves the money she earns and when the property market down she use that money and bought her a house then rent out.

6 General Strategy for Stock Investment

Nowadays stock investment has become one of the way people look for passive income. In stock market, retailer can trade 1000 plus of company stock. However, which stock to buy is always the question everyone asking. Some retailer will buy stock base on technical analysis provided by banker, fund manager and even trader itself. Then some will base on rumors spread by friends or forums. However, the result is not always what they expected.

Eventually, I believe technical analysis is the best tools to help us to pick which stock to buy. However, I know some of you are not so good in technical analysis so you might want to know what the other strategies to invest in stock are. Here are some general strategies I will use for stock investment. 

1. Value the company 

Always value the stock base on the company growth, profit and cash holding. The company must have future growth and have to be always active in expending their business. The company needs to have good track of profit. Their cash holding also have to be strong. 

2. Pricing Power 

Try to invest in company which has pricing power. This kind of company can increase their product price and yet it won't reduce their sales. The company which has pricing power normally can withstand the market crisis. This is also one of criteria when Warren Buffett invests into the company. 

3. Invest Dividend Stock 

Invest in high dividend stock. Why dividend stock? It's simple because high dividend stock can provided you a good passive income. With passive income you can reinvest back into stock. 

4. Focus 

Focus on buying the stock. Don't too diversify your portfolio. When found a value stock to invest, focus on investing to the stock. Do not panic when the market is down. 

5. Monitor stock once a week 

Everyday monitor your stock will make you emotional and then make mistake. Try to monitor your stock once a week so you can also enjoy your life besides investing stock. 

6. Buy when down 

When market is down, do not panic... try to review which stock you can invest Try to find which entry level you are comfortable. This is the time where you can find the value company with a good stock price. 

I know the strategy is very simple and maybe everyone already know however sometimes we tend to forget. Sometimes, simple make our life easier. Happy and enjoy investing.

Where to invest with your extra money?

Where to invest with your extra $$?? I think a lot of people are searching for the answer. 

I love to share out some of the investment that we can explore to. 

Fixed Deposit (Low Risk) 

Fixed Deposit is the most low risk investment due to low return rate. It is the only guarantee & secures investment in the market. For example, if you put 10,000 and FD rate is 3% then u will get 10,300 at the maturity date. No admin fees or charges. 

Stock/Share (Medium - High Risk) 

Stock investment will have some risk exposure for investor. There is no guarantee return to invest in stock market. However, with a proper planing and analyst, one can get nice return in stock investment. E.g. Warren Buffet. In stock market, company will listed and allow investor to trade. The company will use the money they get from the market to expense their business. In return, if the company performance or profit the company share price can go up and also company might give back some profit to their investor as a dividend form. 

Unit Trust (Low - Medium Risk) 

Unit Trust investment is good for people who does not want or don't have time to monitor the market. Normally, people will entrust their money to fund manager and help them to invest. This kind of investment will incur fees and charges. 

Forex (High Risk) 

Forex investment is where we trading currency, buy or sell. This investment is high risk because the movement is very fast so it will be better if you got a trading plan 1st before you invest in this. The major currency people usually trading are EUR/USD, GBP/USD, AUD/USD, USD/JPY and USD/CHF. 

Gold (Low Risk) 

Gold is a good investment for hedging inflation. Gold has provided impressive record in recent years. However, Gold itself does not create any value. It is not a company that can be judge by performance or profit so Gold price will only depend on supply and demand. 

Property (Medium Risk) 

Property investment can be categories to capital gain or rental gain. For capital gain, normally investor will source new property development and once the property ready they will sold it out. For rental gain, investor will buy the property and rent out the property to get the rental. 

Insurance 

This is one of the investments that we always left out. We will only realize this investment very important when we need it. Insurance is not only investment but also a protection for your family. It can be either life insurance or health insurance. Please allocate some money here. 

These are only some investment which I like to share with you all.