Blog Archives

Larry Page, CEO of Google Inc. certainly idolized Apple cofounder and former CEO, Steve Jobs, but he is not going to emulate the way Jobs acted secretly about his health issues.

On Tuesday, in a very lengthy post on Google +, one day before Google’s big developer conference, Google I/O, told the world he has a paralyzed vocal cord and the other one is also suffering from nerve damage, which is why he has been having trouble with his voice over the last year.

Throughout the last year, Page has missed one of Google’s earnings conference calls, Google I/O and a shareholder meeting. This problem doesn’t allow Larry Page to speak for long periods of time. Many might believe that this situation could seriously hamper a CEOs career, but it’s not holding back Page from doing his job at all.

Page wrote that Sergey Brin, Google cofounder “says I’m probably a better CEO because I choose my words more carefully.” He also mentioned that the vocal cord nerve issues can negatively affect one’s breathing, “so my ability to exercise at peak aerobic capacity is somewhat reduced,” wrote Page. “That said, my friends still think I have way more stamina than them when we go kitesurfing!”

Being so open about this situation is very different from the way that Steve Jobs handled his situation when he had surgery for a rare form of pancreatic cancer. Jobs chose not to disclose the information to the shareholders at Apple until afterwards. A few years later he even misled investors with his explanation as being vague in regards to his weight loss. This raised a lot of eyebrows on Wall Street.

Warren Buffett, CEO and chairman of Berkshire Hathaway, was much more open in his approach last year, when he mentioned to his investors that he was diagnosed with stage I prostate cancer. He told investors that his prognosis was good, but he also let everyone know that he would inform them if his health changed in the negative. Buffett was critical of the way Steve Jobs handled his health disclosures, when he told CNBC in 2009 that “it’s a material fact.”

In the end, it falls on the shoulders of Sergey Brin, Chairman Eric Schmidt and Larry Page himself to figure out whether or not his limited voice is dampening his ability to work as Google CEO. With the structure of Google’s dual class stock, the three individuals just mentioned ultimately have control of voting rights that dictate Google’s destiny.

But investors were glad that the voice issues were explained. Many feel that it is better late than never.

Billionaire investing success Warren Buffett does not like owning bonds at this point, and he thinks the average investor should avoid them as well.

The chairman and CEO of Berkshire Hathaway, major investment conglomerate, believes that individual investors should have plenty of cash on hand so they are comfortable just in case something unexpected happens.

He also believes that they should invest the rest of their money in stocks, even though the price of stocks has risen quite higher than they were years ago when the Great Recession first hit.

On Monday while giving an interview on CNBC, Buffett told the world that bonds are a terrible investment at the current time, and he also mentioned that long-term bond owners may see large losses once interest rates eventually rise again.

The Oracle of Omaha also said that stocks are selling for very reasonable prices generally even though the Dow Jones Industrial average is seeing record high levels, along with the S&P 500 index.

Buffett, 82 years old, also mentioned that he doesn’t have any plans to retire in the near future, and he also believes the efforts of the Federal Reserve, with keeping interest rates low, have helped the stock market. Income improvements continue to play a role for stocks as well.

Buffett is a continued fan of Federal Reserve Chairman Ben Bernanke, and he mentions that he believes bond prices are artificially inflated because of the stimulus that is ongoing from the Federal Reserve. The stimulus is $85 billion worth of bonds being bought every month, which keeps the interest rates at a low level. At this time, bond yields are near historic lows, and they move inversely to prices.

On Monday, Buffett gave interviews to Fox Business News and CNBC after Berkshire Hathaway’s annual shareholders meeting this past weekend. It was a star-studded event.

At the time of this writing, Berkshire Hathaway owns more than 80 companies and has large investments in IBM, Coca-Cola and Wells Fargo, as well as other iconic brands.

Buffett also reiterated his support of Jamie Dimon, J.P. Morgan Chase chairman and CEO. He said that Chase has the right person running the show, and he also owns the stock as part of his personal portfolio.

Buffett also believes that Berkshire Hathaway will own a stake in H.J. Heinz – the ketchup maker – forever, and he said that he didn’t have any problem taking on 3G Capital as a partner. They are the Brazilian investment firm that split the bill for H.J. Heinz. He also hopes that the Berkshire Hathaway stake in Heinz will grow as time goes by.

He was also questioned about the way the Heinz deal was structured. People wonder if the 50% split is a change in the way Berkshire Hathaway will invest and do business from now on. Berkshire Hathaway typically buys a company outright, and they let the company run without any intervention whatsoever.

3G Capital is not your typical private equity firm, said Buffett, since they put a large amount of their own money in deals, and they also run businesses.

Buffett even mentioned that Burlington Northern Santa Fe railroad’s traffic is picking up, but it’s probably going to haul fewer carloads than it did before the recent recession.

Burlington Northern Santa Fe “has been a terrific acquisition for Berkshire,” said Buffett.

BNSF contributed $798 million to Berkshire Hathaway’s $4.9 billion profit for the first quarter, which the company reported on Friday. Berkshire Hathaway’s profits rose by over 51%, beating last year’s net income of $3.3 billion by a wide margin.

Warren Buffett, billionaire investor, looks at the economy as slowly improving. He has also hailed Ben Bernanke, Federal Reserve Chairman, as being “gutsy” for the central bank’s actions in which they have attempted to boost growth.

On Monday morning, he told CNBC that he really isn’t concerned with the recent record highs in the financial markets. He also mentioned that he recalls when the Dow Jones industrial average first crossed 100 points.

He then said that investors should not shy away from the markets.

“Probably in my lifetime, and certainly in your lifetime, you will see markets that are far higher than this,” said Buffett to Becky Quick of CNBC.

Buffett also said that even though stock prices are higher lately – and the Dow Jones even crossed a record breaking 15,000 during Friday’s training – he also said they’re not “ridiculously higher.”

Buffett mentioned that the housing recovery is a strong reason why economic growth is stimulated, and economic demand is also slowly returning.

“The economy is moving forward, but at a slow pace,” said Buffett.

Buffett had really high praise for the Federal Reserve chairman, leader of the controversial Fed efforts being used to stimulate the economy through near zero interest rates while dramatically expanding the balance sheet of the central bank.

For the first time last week, Fed policymakers said they are ready to increase the $85 billion a month bond buying program implemented by the central bank if the economy is in need of this.

Buffett mentions that the Fed chairman is a “gutsy guy” for the actions he has taken since the 2008 financial crisis has begun, and that the Fed chief has done “very, very well” with his efforts to keep the economy moving in a forward direction.

Buffett mentioned that he personally may have started reducing the stimulus earlier, but he also mentions that he’s not sure how he would’ve done it so that it would not hurt economic recovery and growth.

For the most part, the annual meeting hosted by Berkshire Hathaway is usually a lovefest for the Oracle of Omaha.

Things are going to be different this Saturday, when a hedge fund manager picked directly by Warren Buffett himself tries to add a measure of skepticism to the otherwise happy-go-lucky proceedings.

“It’s fair to say that I’m Daniel in the lion’s den,” said Douglas Kass this past Thursday during the middle of his trip to Nebraska. He is the head of Seabreeze Partner’s Management. “But I’ve prepared intensely.

Mr. Kass is openly bearish on Berkshire Hathaway and he believes that the stock price is going to fall. He is the latest addition to a shareholder meeting formula that has been in place for decades at this time. In early May of each year, over 18,000 shareholders head to Omaha in order to listen to what beloved CEO and Chairman Warren Buffett has to say.

Throughout the years, the majority of the questions asked of Warren Buffett have been relatively soft. People ask about his religious beliefs and sometimes they may ask about the global economy.

This year, Buffett has chosen to try and toughen up the questions at the 2013 annual meeting. This is the exact opposite of what most publicly trading companies attempt to do. He also asked analysts and reporters to ask tougher questions this year as well.

But the boldest move yet is to invite Douglas Kass. He is a hedge fund manager that is known frequently for his contrarian positions. He often voices his opinions in appearances on television shows that talk about business, and he also has a column on TheStreet.com. It’s also known that Douglas Kass spent time working for Ralph Nader during his student years.

“See if you can drive the stock price down to 10%,” teased Warren Buffett while talking to his new foil in March during an interview on CNBC.

Over the years, Douglas Kass has repeatedly looked into the weaknesses of Berkshire Hathaway. He even wrote an article about them on TheStreet.com. The weaknesses mentioned at the time were the advanced age of Warren Buffett plus the company’s slow growth.

Douglas Kass has a short position on the shares of Berkshire Hathaway. He didn’t disclose the size of the position, but said it is an average size for him. Over the past month, Kass has thoroughly read up on Buffett and Berkshire Hathaway, and he’s whittled 25 attention grabbing questions down to just six.

If Buffett answers two of the six questions, it will generate seriously big news. The four others have never been asked of Buffett before.

At the same token, Douglas Kass says that he is actually a strong admirer of Warren Buffett, who some people refer to as the Oracle of Omaha. Since Kass first began his research, he said he found a number of similarities between himself and Buffett. One similarity is that they both have been treated for prostate cancer, and another is they both used to collect discarded horseracing tickets during their younger years.

Douglas Kass is bringing his son and a group of friends to his first Berkshire Hathaway annual meeting.

“I’m psyched,” said Kass. “It’s like the financial World Series to me.”

Apart from Douglas Kass, many of the usual elements that you’d find at a Berkshire Hathaway annual meeting will still be in place this year. Buffett is still likely to say that his company – a major conglomerate that owns running shoes, railroads and private jets as part of its holdings – has a full plan for succession in place when he finally does decide to retire from his position. (Don’t be surprised if he doesn’t say who he plans to have succeed him as CEO.)

It’s also probable that Buffett will discuss his burning desire to make bigger deals, which is his major claim to fame at this point. Oddly enough, neither of his acquisitions so far this year qualifies as giant takeovers. Along with a Brazilian investment firm, Berkshire Hathaway bought H.J. Heinz for $23 billion. Berkshire also purchased 20% of IMC, the Israeli tool maker. It already owned the other 80% of the company, and they paid $2 billion for the last 20%.

“It’s back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants,” wrote Buffett in his annual letter to shareholders. The Charlie he’s referring to is his longtime investment partner and vice chairman of Berkshire Hathaway, Charles T. Munger.

It is also expected that Warren Buffett will discuss buying out newspapers recently, since he has bought 28 dailies over the last year and a half for a total of $344 million. This campaign for acquisitions is definitely not his most expensive to date, but Buffett describes it as an addiction because he sees such value in local newspapers.

It’s uncertain as of yet if anyone will ask Buffett about a future move to social media. At 11:20 AM on Thursday, Omaha time, Buffett decided to overcome his aversion to technology and posted his first Twitter message. He wrote “Warren is in the house,” and a cameraman from Fortune magazine caught the whole thing on video.

The tweet was reposted over 25,000 times later that same afternoon, and his Twitter account already has over 176,000 followers. Douglas Kass is among them, and he is also a prolific Twitter user. He is using the micro blogging platform to document his passage to Omaha.

This was a major surprise to everyone, since Buffett once said that he missed an important message about Lehman Brothers because he had no idea how to check the voicemail on his phone.

“I guess he’s not as much of a Luddite as he professes,” said Kass.

Buffett hinted that Twitter was a little bit more of his style than some of the other social media platforms.

“The co-founder came from Nebraska, so it can’t all be bad,” said Buffett in reference to Evan Williams, Twitter co-founder.

Warren Buffett recently appeared on CNBC’s Squawk Box, where the CEO of Berkshire Hathaway gave out some excellent advice to Apple Inc. and their management. Mister Buffett recommended to Tim Cook to buy back shares, spend his time focusing on the business, and forget about what’s happening on Wall Street.

Start a Share Buyback Program

“When Steve [Jobs] called me, I said, is your stock cheap? He said, yes. I said, do you have more cash than you need? He said, a little. I said, then buyback your stock,” said Warren Buffett.

Buffett also made another recommendation. He told Apple Inc. to give back the excess money to the shareholders in the form of a share buyback or a dividend.

But which is the best option?

There is currently a perception that Apple shares are cheap. Apple’s business is currently valued at 6.5 times trailing earnings, backing out of the $173 billion of the cash currently on the balance sheet of the company.

To put this in perspective another way… Apple’s P/E ratio hit bottom at 5.8 during the summer of 2000. At that time, the company was actually nearing bankruptcy. Since Apple is currently creating an amazing amount of cash, and their profits are growing in the double digits, it’s shocking that the discounted share price even exists.

Since the stock is actually trading at a very low valuation, a buyback program would be the best move since the company would be able to buy back shares at a very nice discount compared to intrinsic value.

As Warren Buffett puts it, “… If you can buy dollar bills for 80 cents, it’s a very good thing to do.”

Make the Business the Main Focus

“I would run the business in such a manner as to create the most value over the next 5 to 10 years,” said Warren Buffett.

The management at Apple should seriously focus on finding more opportunities to create added wealth for their shareholders. Here’s a couple of solid ways that they can do this:

invest in new technology – Apple could purchase some of the smaller players working on the bigger problems like sunlight readable screens, longer battery life, and even wideband antennas. By picking up the smaller firms already working on solving major issues, Apple would have a much bigger lead technologically than many of its competitors.

Reinvent the television – if iTV is ever going to be a major success, they need real quality programming. There is a rumor going around that Apple is seriously thinking about buying Netflix. This will give Apple a quick opportunity to pick up exclusive content and a valuable platform for distribution. It would likely cost Apple anywhere from $12 billion-$14 billion to acquire this company, and this is just a tiny fraction of the $50 billion that Apple has on hand in annual free cash flow.

Get your head in the clouds – the iCloud has a rumor surrounding it as a major part of Apple’s long-term growth strategy. One quality move Apple could make to improve its product is to purchase large data centers and applications.

Improve the current supply chain – if they make large advance deals to some of the component suppliers in use by their competitors, Apple could easily corner the hardware market. They can also develop manufacturing techniques that they would patent. This way their rivals would not be able to copy them.

As you know, this is mainly just my thoughts on this topic and nothing more.

Forget about the Share Price

“You can’t run a business to push the stock price up on a daily basis,” said Warren Buffett.

Wall Street always wants a quick bump in share price. It does not matter if it jeopardizes the company’s long-term prospects or not.

Over the last few weeks, we have seen several of these proposals…

Investor David Einhorn has called upon Apple to issue $250 billion in ‘iPrefs,’ which is a perpetual bond like security that pays out a 4% fixed dividend. Barclays also wants the company to issue $50 billion-$100 billion in debt in order to fund a massive share buyback.

Apple did not become the powerhouse company that it is by messing with spreadsheets or Excel formulas. The company succeeded because it creates incredible products loved by all of their customers. Apple would be much better off if they just ignored the investment bankers and their financial suggestions.

Warren Buffett is one of the most famous investors throughout the world, and he’s also very bullish on stocks once again. The market is currently reaching and breaking highs that it hasn’t seen since the crash in 2008. That makes it very difficult not to feel good about your investment accounts and your 401(k) again. During a recent interview with CNBC, Buffett said, “If you’re asking me if stocks are cheaper than other forms of investment, in my view the answer is yes. We’re buying stocks now. But not because we expect them to go up. We’re buying them because we think we’re getting good value for them.”

Even though the market is at an all-time high, Warren Buffett is giving the world the “all clear” sign and saying it’s fine to dive back into the equity markets. Should you do so and follow Warren Buffett’s advice, or steer clear of them for now? After all, Warren Buffett is considered one of the most intelligent investors of all time, so why not follow his guidance and lead?

Well, here’s a few reasons why he could certainly be wrong:

Is It Wise for Warren Buffett to Ignore His Own Advice?

From time to time, Warren Buffett will really offer some incredible advice. One of his best forms of advice is, “Be fearful when others are greedy, and greedy when others are fearful.” That means not following the herd will give you a better chance at success. There’s no question that the current market rally is squarely held upon the shoulders of the greedy heard. Should you really follow Buffett’s advice in this instance? Shouldn’t Buffett follow his own advice? He might want to exercise a little bit more fear in his thinking.

Should You Buy and Hope for a Miracle… Again?

If you’re like many rational investors in this day and age, the current rise in the market is awfully reminiscent of the 2007 rise in the stock market and real estate markets. You know, right before they came crashing down. Don’t get me wrong. There’s no guarantee that a crash is imminent. But it might be in your best interest to hold off on the stock buying at this time.

Remember, Warren Buffett is an entirely different animal than you and I. He can make business deals that only you and I would normally dream of. He has a significantly different investment strategy for his company Berkshire Hathaway. It has to be different, because he deals with billions of dollars and you don’t. Berkshire doesn’t need the money quite frankly. If it takes 50 years for an investment to pan out, then so be it. You on the other hand will need your money for retirement, income, and many other needs.

It’s a lot different to plan for an institution than it is to plan for an individual person. As I said, Berkshire can hold onto stocks for decades. So they can buy and hope for the best. If you are able to buy a stock and hold it forever then this is a good strategy, but if you live in the real world, then this might not be the best move to make. It’s easy to buy a stock. The difficult part is selling it.

There’s no question that it’s a good idea to have stocks in your portfolio, but do so with prudence. The “Prudent Investor Rule of Thumb” will provide you with a starting point. Start with the number 100 and subtract your age, and what you have left is what you should have in stocks. If you are 65 years old, then only 35% to your portfolio should consist of stocks.

The Investing World Is More Than Two-Dimensional

Buffett argues that stocks are a great investment right now based on the assumption that only stocks and bonds are available. While on CNBC, he mentioned that stocks are not “as cheap as they were four years ago” but “you get more for your money” when you compare them to other investments, and that, “the dumbest investment, in my view, is a long-term government bond.” I agree with Buffett’s disdain for government bonds, but it implies that the world of investing has only two dimensions, yet this just isn’t true.

Go beyond Stocks and Bonds

if you are a smart investor, it may be wise to do something other than follow Warren Buffett’s advice in this case. There’s no question that money managers and investors need to have an allocation to purchase equities, but do so prudently, and avoid acting reckless in this endeavor. Keep stocks and bonds in mind while you approach your investment strategy. Make sure you are truly diversified, and even consider real estate investing as an option. There are many ways to hedge your bets as an investor, and you need to look into all of them.

Warren Buffett, billionaire investor, isn’t the biggest fan of the automatic federal cuts to the budget that started last Friday. He did say they should not hurt the American economy at all, and that they will certainly help reduce the US deficit.

As of now, the US is currently running a deficit of around 6% of entire economic output. This amounts to creating a form of stimulus for the economic recovery by having $85 billion worth of less spending during the calendar year 2013.

“I think that’s still giving the economy quite a juice,” said Buffett (CEO of Berkshire Hathaway Inc.) to CNBC this past Monday.

President Barack Obama warned Americans of the overall economic impact of the supposed sequestration. Currently, the nonpartisan Congressional Budget Office tells us will slow US growth by 0.6 percentage points during 2013, and reduce jobs by 750,000.

Buffett is in agreement with both Republicans and Democrats in Washington when he describes the wide-ranging process of cutting the budget as a “meat ax” way to help reduce the national deficit.

“It’s a very dumb way of attacking a very serious problem,” said Buffett, in which he notes that automatic spending cuts do not slow the issues of the growth in Medicare, which are the main issue with long-term future deficits.

Buffett also said that the increase in taxes on January 1 were a meat ax approach as well, since the expiration of the payroll tax break of 2% (that was only temporary) affected workers in a wide range.

“We’re going to bring down spending and we’re going to bring up revenues and we may get there in fits and starts and everybody may scream each time we do it. But the deficit is going to come down,” said Buffett.

“We may be doing it in a meat ax way in this particular move,” he said. “We did it in kind of a meat ax way in terms of the revenues going up at the start of the year.”

Approaching deficit spending this way is most likely better than not doing anything at all, said Buffett. But he hopes that the politicians in Washington can come up with a way to improve upon it, and in the end come up with a broader deal.

“You may have to use the meat ax first and then people kind of look at their handiwork and say we have to do better than this,” said Buffett.

This past November, Warren Buffett placed a bid in an effort to acquire New York Stock Exchange operator NYSE Euronext. But his offer fell short because there was a larger one already on the table from Intercontinental Exchange Inc., we learned from two people familiar with the situation.

Since the sources were not allowed to discuss this matter in public, they have to speak under the veil of anonymity… We learned from Berkshire Hathaway, Warren Buffett’s conglomerate – in a regulatory filing by ICE on Monday. Berkshire was the Company A bidder.

NYSE Euronext chose not to comment on this matter, and the assistant of Warren Buffett couldn’t be reached immediately. David Faber first reported this news on CNBC.

Intercontinental Exchange Inc. agreed to purchase NYSE Euronext for a total of $8.2 billion late last month after being in negotiation and talks for about two months.

Before the deal was finalized, the Board of Directors of the New York Stock Exchange instructed the company’s bankers to look for other alternatives, which was made public in an Intercontinental Exchange Inc. filing with the US Securities and Exchange Commission.

On November 25, the bankers of Perella Weinberg approached Berkshire Hathaway, we read in the filing. On November 28, Berkshire Hathaway presented their offer, but it was much less than Intercontinental Exchange Inc.’s bid, and the offer was also contingent upon the sale of NYSE Euronext European derivatives business for a very low price.

On December 12 and 13th, at an NYSE board meeting, Perella Weinberg mentioned that they are still willing to work with Berkshire Hathaway, but the company did not improve their offer. These were the only instances where the unidentified Berkshire Hathaway was mentioned.

If the deal were made, this would’ve been relatively small compared to what Warren Buffett usually buys these days. Throughout 2012, the majority of the deals he looked to make were in the $20 million range. He also mentioned that he would potentially look to do a $30 billion deal in 2013.

Even though he spent the last 50 years or so reading about this company without making one move in its direction, and even shunning the tech sector in its entirety throughout his entire career, Warren Buffett suddenly decided to buy over $10 billion worth of shares of IBM for his company Berkshire Hathaway.

Back in November of 2011, on NBC, Warren Buffett announced that he was about to own a stake in the company, and “he would not be announcing it if he were not pretty much done” with purchasing the shares. Over the next three quarters, he has found the stock so attractive that he continues to buy up more and more shares, and it is now the second most owned stock in his entire portfolio, and this has many investors wondering why.

Purchasing History

Mister Buffett started buying up his IBM shares during the first quarter of 2011, and at that time, he purchased 4,517,774 shares for the average price of $159 per share.This purchasing became a lot more aggressive during the second and third quarter while he accumulated another 82.2 million shares for the average costs of $167 per share and $173 per share. He even made smaller purchases during the fourth quarter of 2011, as well as the third quarter of 2012, and the average prices of those shares cost $185 per share and $197 per share.

By the end of the third quarter of 2012, he owned a total amount of shares reaching 67,517,896, which is about nearly 6% of the outstanding shares in IBM. The IBM purchases also amount to 18.6% of the entire Berkshire Hathaway portfolio.

Management – Business Execution

Buffett has nothing but high praise for Lou Gerstner and Sam Palmisano, the CEOs of IBM. It is 2011 annual letter, he talks about how the gentleman rescued IBM from the brink of distraction about 20 years ago as they were facing bankruptcy, and he mentions how they turned it into an incredibly successful business in this day and age. Notwithstanding their “extraordinary” accomplishments from an operational standpoint, “their financial management was equally brilliant,” said Buffett, “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 regularly uses “Road Maps” to figure out targets for the future of the company, as well as measuring the company’s progress in the present. Mister Buffett was very impressed that IBM had met all of its benchmarks for a plan that they introduced during 2007, which they called the 2010 Road Map. Then in 2011 they introduced another strategy called the 2015 Road Map, which they are well on their way to achieving their goals. During 2010, the company will surpassed the goal set in 2007 of $10-$11 gain in earnings per share. They reached an EPS of $11.52 per share during 2010.

The Road Map of put together by IBM for 2015 has some major drivers in place to boost its earnings per share, such as: growth strategies, operating leverage and share repurchases. According to IBM’s 10K, some of the specific metrics they plan to aim for are:

• a $20 earnings-per-share (non-GAAP)
• half of their segment profit coming from software
• $100 billion worth of free cash flow
• dividends in the amount of $20 billion
• $50 billion worth of share repurchases
• growth priorities:

 

1. Growth markets unit making up about 30% of their segment revenue by the year 2015 (during 2010, it’s about 21%)
2. growth in analytics to reach $16 billion in revenue
3. their cloud computing division bringing in $7 billion worth of revenue
4. their Smarter Planet solutions division to grow to $10 billion in revenue

During the year 2011, IBM achieved a certain amount of progress toward their goals in 2015. That progress is:

• paying dividends in the amount of $3.473 billion (which is a year over year increase of 9.32%)
• repurchasing shares in the amount of $15.05 billion
• a record earning diluted operating earnings-per-share of $13.44 billion (non-GAAP)
• a record-breaking amount of $16.6 billion in free cash flow
• five acquisitions in software and the amount of $1.8 billion
• 44% of their segment profit came from software and services
• growth priorities:

 

1. 22% of their geographic revenue comes from growth markets, which is an 11% increase from the year 2000
2. revenue growth reached 16% year over year (growth analytics)
3. revenue growth reaches 200% year over year (cloud computing)
4. revenue growth reaches 50% year over year (Smarter Planet)

IBM mentions that the 2011 positive financial performance is a result of the company’s transformation, where they shift their business model “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 that IBM has made during their transformation are getting out of the hard disk drive and PC business right before there was a dramatic slowdown in the market in both of those industries. They also created some new services, products, technologies and skills that they entered into the fray.

By focusing on growth, and investing in innovation, this allowed the company to journey into new markets and test out new types of technology, such as cloud computing and business analytics.

Moat

the transition made by IBM has literally transformed this business into a service company, as opposed to the software and hardware company that they used to be. During Warren Buffett interview on CNBC, he mentions that many companies are reluctant to change their IT suppliers, and as they look around the world for companies to develop their IT departments, they will often turn to business icon and trusted company IBM.

Business Metrics

Buffett also mentions on CNBC that it’s currently a good idea to start put your money into American businesses, and specifically the businesses that “are earning very good money, that have high returns on equity, have high returns on incremental capital, or buying in their stock at a rapid rate so that your ownership in the business increases significantly.”

In the case of IBM, it has:

• Return on equity – throughout 2009, 2010 and 2011, the ROI generated by IBM was 59%, 64% and 78.4%. This is much higher than the beginning part of the decade.
• Stock repurchases – IBM regularly repurchases their shares, which you can see throughout history. Buffett mentioned that he would be happy if IBM reduced their share count to 64 million shares. From 2003 to 2011, IBM has lowered its share count from 1.72 billion to 1.179 billion.

Even though future earnings are going to ultimately determine Warren Buffett success with IBM, during Warren Buffett’s 2011 letter, he actually hopes that the stock price languishes because the amount of shares that he is able to purchase with the amount of money IBM dedicates toward repurchases it was “an important secondary factor.” The more shares that IBM is able to buy, the bigger percentage of the company Warren Buffett will own.

Warren Buffett purchased IBM near historical high prices. Over the past year, the stock price has risen about 6%. It’s P/E is 13.5, P/B is 10.2  and P/S is to.

To start this off right, I’d like to point out that Warren Buffett is extremely optimistic about the future of America. “Tomorrow’s always uncertain,” he mentions while on CNBC this morning. “But the future, the longer future, is always very certain. And that’s what you have to keep your eye on.”

It’s this very attitude that allows Mister Buffett to continue building astronomical stakes in businesses that he feels are worthy through the best of times and the worst of times. But how does Warren Buffett choose these particular companies to begin with? Let’s look at Wells Fargo, and find the evidence in this stock which he continues purchasing the most.

Wells Fargo

Wells Fargo has entered into Warren Buffett’s portfolio way back in the 1990s, and it is a great representation of his philosophy of long term investing. Plus, you can see a steady trend of continual buying of this stock since the first quarter of 2009. From that point until the present day, Berkshire Hathaway has bought 1 million 119,940,333 shares of Wells Fargo. This has brought the total position up to more than 422 million shares in all.

Warren Buffett made three very important moves in his portfolio during 2011, and Wells Fargo was one of them, along with Bank of America and IBM purchases. He provides shell holders several different reasons why this was important during his annual letter: “the banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”

Wells Fargo is also extremely large – since it currently serves about one out of every three households in the United States of America from its 12,000 ATMs, it’s 9000 branches and their website. They are also prominent in 35 different countries. This company is also the first in market value of its common stock out of all of the United States banks, and the fourth in assets.

Even though Warren Buffett requires a high ROI from a bank, he also insists that the return on investment be gained in a conservative manner. This is great, because Wells Fargo has a very well maintained and controlled operating environment. It has excellent ground rules in place to manage credit risk, and they monitor their loan portfolio performance very closely. It also has set ranges for its interest rates and market risks in its liabilities and assets, while it is able to fuel growth with ample capital levels and liquidity.

In addition, Wells Fargo will continue to remove nonperforming loans from its assets. During the third quarter of 2012, loans that were 90 days past due or more totaled in the amount of $1.5 billion. This is down a half $1 billion from the $2 billion at the end of 2011.

As well, Wells Fargo also solidified its position with capital. The equity earned in the third quarter was increased by $6.6 million from the second quarter numbers, and rose to $156.1 billion. Its tier 1 common equity reached the amount of $105.8 billion, which is equal to 9.9% of the risk-weighted assets. Wells Fargo also has a nice tier 1 capital ratio of 11.5% in their total capital ratio of 14.51%, as well as the tier 1 leverage ratio that they possess of 9.4% which rounds out the third quarter.

The other results that they gained during the third quarter are testament to showing that they are a strong company that can easily withstand economic uncertainty. The bank overall reported a total of $4.9 billion and earnings, which is up 8/10 of 1 billion from last year’s $4.1 billion at the same time.

The improvements that Wells Fargo gained this year were basically brought on by fee income and balanced net interest. They also have a strong credit performance, a diversified loan portfolio and further diversified sources of their fee income. They also grew across many of their businesses.

Wells Fargo’s third-quarter revenue grew to $21.2 billion, which is up from the $19.6 billion that it saw at the same time last year. The revenue was strictly sparked from noninterest income growth in the mortgage banking industry, and you can combine that with a mild increase in their income from that interest. They also originated 56% more loans this year than they did at the same time last year.

Also during the same quarter, Wells Fargo decided the buyback 17 million shares and they also paid a $.22 dividend. The previous year’s dividend was only $.12. During Warren Buffett’s 2010 letter, he predicted that Wells Fargo would have a dividend increase. He also expected that his largest gain in dividend would come from Wells Fargo. They were forced to lower it at one point, though it was “consistently prospering throughout the worst of the recession.”

Buffett seem to have a crystal ball so to speak, but he really knew that the fundamentals and Wells Fargo’s strategy of execution would easily survive the economic turmoil. He made his biggest stock purchases throughout the five years by buying shares during the biggest stock dips. Those took place during the first quarter of 2009, the third quarter of 2009 and the third quarter of 2010. But he’s actually made his biggest purchases over the last year, all while the stock has been rising by almost 23%.