Warren Buffett began purchasing stock in IBM in 2011, allegedly due to its “stickiness within corporate IT departments” but many criticized his decision. However, while his investment has nearly broken even, the stock shrank for around 19 quarters in a row before enjoying a modest 20% rise in the last year. But, after so many years of loss, should Buffett drop IBM?
Generally speaking, Buffett tends to hold on to his investments for the long haul, trusting the eventual upswing of the market to work out in his favor. While investors will try and tell you his “favorite holding period is forever” Buffett does sell stocks fairly frequently when they are no longer lucrative. So, why is he still holding on to IBM?
Here are three reasons why we think that Buffett should go ahead and bow out of IBM while it’s close to in the black:
1. It is no longer a market leader
IBM was once a powerhouse. You couldn’t buy a computer without seeing the little blue IBM sticker on it. And, more importantly, seeing that sticker meant that you were getting a good product. That ‘stickiness’ that Buffett is remembering, however, has long since faded. I can’t remember the last time I heard any good news about IBM, and it is no longer the important name in the industry. In short, times have changed.
2. Its products are weak and late
Going on the same vein as the above, IBM has lost quite a bit of ground in the development department. Forbes claims that the company places ridiculous restrictions on its development department, slowing everything down. Whether or not that’s true, the company hasn’t come out with any major noteworthy innovations recently and, most importantly, it is no longer the first or best one when new products do come out.
3. There is no transparency
The company itself doesn’t really have any transparency to its business. Sure, that might seem a little hypocritical when comparing it to Berkshire Hathaway, which is also known for its lack of transparency, but it’s a warning flag. When there’s a lack of transparency, that tends to make people nervous and wonder what the company is hiding. Sure, it could be hiding something awesome, but the chances are higher that it’s hiding some failing numbers.