Warren Buffett (Trades, Portfolio) trimmed his IBM (IBM, Financial) stake by 32%, bringing down the number of IBM shares Berkshire Hathaway owns from 54.08 million shares at the end of the second quarter to 37.03 million at the end of third quarter. Buffett has effectively sold a third of his stake in a single quarter, which is indeed a huge vote of no confidence for Big Blue.
In an interview to CNBC earlier this year, Warren had said that "I don't value IBM the same way that I did 6 years ago when I started buying... I've revalued it somewhat downward." He added, "When it got above $180 we actually sold a reasonable amount of stock."
Buffett (Trades, Portfolio) started buying IBM shares back in 2012 and accumulated an 8.6% stake. Buffett had nearly 81 million shares of IBM at the end of 2016, but trimmed a third of that stake in the first two quarters of 2017, and further cut it down by a third during the third quarter. From 81 million, he is now down to 37 million.
He still holds a sizeable number of shares, but cutting the position by more than half in just three quarters clearly shows that Warren is rushing out of the stock. But the good thing for IBM is he at least did not make a scathing comment about the management, similar to what he did when he bailed out of Procter & Gamble. Warren keeps citing the competitive forces at play against IBM as the reason for his exit.
The Procter & Gamble matter was different. Buffett (Trades, Portfolio) saw Procter & Gamble’s problems very early on, long before many investors realized the company was in trouble. In 2014, when he held nearly $5 billion worth of Procter & Gamble stock, he struck a deal to buy Duracell from Procter & Gamble, along with $1.8 billion cash to recapitalize Duracell, in exchange for the shares he held.
In 2012, he told CNBC the company's earnings "have been disappointing now for a few years. ... What goes on in the place, what mistakes have been made, what the plans are, I don't know the answers on that. ... The jury's out on that."
Procter & Gamble’s revenue tumbled in 2015, exactly a year after Buffett exited his position in the company. After selling 200 brands and going through a two-year restructuring process, Procter & Gamble is still searching for growth, and no one really knows when the period of sustained revenue growth will begin.
Buffett was clearly right about Procter & Gamble, and possibly correct about his assessment of IBM as well. But existing investors can at least take heart from the fact that Warren is trimming down his IBM stock due to a lack of a strong moat, unlike his “what goes on in the place” take on Procter & Gamble.
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Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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