Tags: warren buffett | ibm | stock picks | invest

Buffett to CNBC: Buying IBM Shares Could Be a Mistake

Buffett to CNBC: Buying IBM Shares Could Be a Mistake
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By    |   Monday, 29 February 2016 08:14 AM EST

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., told CNBC on Monday the firm's ownership of International Business Machines Corp. shares could prove a mistake and that he was buying more U.S. stocks overall since the end of last year.

"We've owned stocks that we've lost money in," Buffett told CNBC. "If I'm wrong, you sell them out and take a big loss. We've done that on a few occasions with stocks and bonds over the years."

Berkshire, which held an 8.59 percent stake in IBM as of Dec. 31, 2015, said in an annual shareholder letter on Saturday that it planned to keep that stake despite a $2.6-billion paper loss at the end of last year.

Buffett told the cable television network he did not think he was wrong for owning IBM shares so far, but said it "could be" a mistake.

Business was a bit "softer in many places" than he had anticipated four or five months ago, Buffett said, adding that in general, stocks would go up over time.

"We have bought more stocks since the end of the year," he said. "The country is not going to go away," he said. "The country will grow in value over time," he said,

"We're almost always a buyer of stocks," he said. "It's hard to think about many months when we weren't a net buyer of stocks," he said,

But he did urge investors to use caution and common sense, and do their homework.

"What you pay for a stock doesn't mean anything. What means something is where the company's going to be in five to 10 years," Buffett said. "I think IBM will be worth more money but, like I said, I could be wrong but we'll accept that."

He also discouraged the average investor from trying to emulate his investment strategy regarding IBM, adding that most investors are likely better off buying into an index fund, CNBC reported.

"I'm not an investment adviser. I wouldn't ever urge them to do anything based on what we do. If they want to do what Berkshire does, then they should buy Berkshire," he said.

"I think they're making a big mistake by piggybacking me or 10 other people whose names appear in the paper. That is not a great strategy; a great strategy is just to buy stocks consistently over a lifetime and not worry too much about whether they go up or down in any given month or year."

In a wide-ranging live three-hour interview, Buffett discussed a variety of topics:

  • The U.S. economy appears weaker than he thought it would be as recently as last fall, but that doesn't change his optimistic long-term view of the country's prospects. Buffett says the collapse in oil prices will be good overall for the American economy because consumers will have more money to spend. But he says the negative effects of falling crude prices hit the oil industry immediately in terms of lost jobs and reduced company values. Buffett says the benefit to Americans trickles in slowly every time they fill up their gas tanks.
  • He did not know what the consequences of sustained low interest rates globally would be because it has never happened before. But he said that they had the effect of making all assets more valuable.
  • Berkshire Hathaway's insurance units in Europe will lose money on the cash they have to keep in banks. He joked that Berkshire would be better off stashing cash in a giant mattress instead of banks if only he could find a trustworthy person to sleep on top of a billion euros. Buffett says he understands why regulators cut interest rates to help Europe recover, but there's no way to know how that will affect business.
  • Distracted driving appears to be a growing problem on American roads that contributed to an increase in deaths last year and hurt profits at his company's Geico insurance unit.
  • Auto insurance rates are going up this year because of the increased occurrence and severity of accidents last year. The National Safety Council recently estimated the number of traffic deaths in the United States rose 8 percent from 2014 to 2015, the largest year-to-year percentage increase in a half-century.
  • He weighed in on a privacy fight between Apple Inc. and the U.S. government, saying privacy should trump security in smaller cases but that security should trump privacy in major cases. "If there is something major, something that the Attorney General or the head of the FBI would be willing to sign and go to a judge on and say, 'we need this information and we need it now,' I would be willing to trust that official," he said.
  • Buffett, who is backing Democratic candidate Hillary Clinton in the 2016 U.S. presidential election, said he had been surprised by the election season and "amazed" by Republican party developments, stating: "This takes the cake."
  • He may be a Hillary supporter but he appreciates Sen. Bernie Sanders' speaking his mind. "What I like about Bernie Sanders is he'll say exactly what he believes. He is not tailoring his message week by week. You'll find with some of the candidates that they shift around, or they don't answer the question. With Bernie, you know exactly what he thinks," Buffett said.

Meanwhile, in his annual letter to shareholders over the weekend, the "Oracle of Omaha" reiterated his support for IBM and American Express Co., even as those companies’ shares slump.

IBM and AmEx, along with Wells Fargo & Co. and Coca-Cola Co., “possess excellent businesses and are run by managers who are both talented and shareholder-oriented,” Buffett said in his annual letter Saturday. That passage is identical to what he wrote a year earlier.

IBM fell 14 percent in 2015 and AmEx plunged 25 percent, with both extending their declines since Dec. 31. While Berkshire is still sitting on huge gains from the American Express stake, IBM trades for less than what Buffett paid in 2011.

The unrealized loss on IBM widened to $2.6 billion as of Dec. 31 from $2 billion at the end of the third quarter. “We currently do not intend to dispose our IBM common stock,” Berkshire said in its annual report Saturday, also echoing a prior filing. “We expect that the fair value of our investment in IBM common stock will recover and ultimately exceed our cost.”

Buffett is known for building large positions in his favorite companies and holding them for years or even decades. Berkshire’s stock portfolio was valued at more than $112 billion as of Dec. 31 and has grown with the recent addition of Phillips 66 shares. Wells Fargo has dropped about 12 percent over the last year and Coke is little changed in that period.

“We think American Express, IBM as well as the other major holdings like Coca-Cola and Wells Fargo, those will continue to be consistent long-term holdings of Berkshire,” Jay Gelb, an analyst at Barclays Plc, said Friday in an interview on Bloomberg Television.

“Holdings like American Express have billions of dollars of embedded gains for Berkshire. My sense is that Warren Buffett still has a positive long-term outlook on the company.”

(Reuters and Bloomberg contributed to this report).

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StreetTalk
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., told CNBC on Monday the firm's ownership of International Business Machines Corp. shares could prove a mistake and that he was buying more U.S. stocks overall since the end of last year.
warren buffett, ibm, stock picks, invest
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2016-14-29
Monday, 29 February 2016 08:14 AM
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