Backtesting bufett fundamental analysis in buying technology companies, and why he is selling part of it

Why did Buffet buy IBM
1) vendor stickiness of services
2) vast global customer base, allowing it to thrive regardless of how technology evolve
3) management ability, divesting low margin business, growing high margin business (consulting , outsourcing)
4) favourable long term prospects at that point of time (outsourcing processes 52%, largest systems and it integration consultant,)
5) management financial management ability, use debt wisely, made value adding acquisition from cash, share buyback
6) technology services companies are less prone to cyclical shocks and growth is more stable , growth industry ,highly dependent on discretionary budget of clients for it services
7) IT outsourcing has Moat like qualities as it is core for technology driven firms (utility) . Switching costs and scale advantages discourage

Why did Buffet sell one third of his stake at IBM 6 years later
1) tough competition
2) new disruptive technology (cloud computing) bring great profits for ibm, but many other business shrinking (X86 server). Lifespan of technology franchise too short. Good call from management shifting resources from businesses in declining markets
3) forex risk overstating profits on the buy years, and eroding profits in the hold years
4) falling short of earnings per share performance targets (continue to decline, prolonged turnabout is hard to forecast )
5) transition to stalwart (rich dividends but declining profit, no certainty of turnabout)
6) deteriorating fundamentals
7) cognitive computing (Watson) created headlines but had not transited to growing revenues
8) Technology has risks of incurring high growth but making no money . Only the last few emerging survivors takes all by establishing network externalities (google facebook twitch Amazon)  while others perish (Bing, yahoo, snapchat, creative, Nokia)

Sources
http://www.businessinsider.com/why-warren-buffett-selling-one-third-ibm-shares-2017-5

Comments

Post a Comment

Popular posts from this blog

A New Light

 A New Light After a hiatus from writing and picking myself up from the issues in my personal life, I decided it will be great to resume writing on a monthly frequency to connect with my inner self, and connect with like minded thinkers and writers.  Writing and investing is my passion regardless of whether I am getting paid for it. Even if no one is reading about it, writing keeps my mind sharp and discussions with others allows me to bounce off ideas with other experienced / astute investors. I am also thankful to have met new friends in person with a passion in investing in recent months, and reignite my passion in what I loved.  I will resume writing and blogging at https://caveatemptorvenditor.substack.com/
Read more

Portfolio Review 2019 - Performance Review

Image
Quantitative Measures Beta = 0.76, VaR = 8.92%, Expected Shortfall = 17.43% Overall - Time = 19.99% Performance Review for 2019 Beating the STI ETF benchmark is not difficult this year. As a market capitalized ETF, STI ETF was a late buyer in the REIT rally, which highlighted the downside of this methodology. Moreover, a lot of retail investors with larger proportion to REITS performed way better than me. My returns were also punished as I averaged down on Silverlake Axis on the recent price correction. I also sold off a percentage of STI ETF to increase my war chest instead of reallocating to US Stocks, resulting in the missing out of the Christmas rally and the year end momentum play. The S and P 500 trounced the returns of most market participants. I am not certain whether the blind money / DCA via index investors resulted into this phenomenon. There is significantly high PE stocks in the index constituents. Stocks could be simply getting more ...
Read more

Everybody has a plan until they get punched in the face

Image
  Everybody has a plan until they get punched in the face As the china central government continued their spree of popping up regulations in all areas of China economy (Minimum wages, living conditions for drivers, 996 working hours, gaming time for minors, wealth redistribution policies, Banning dancing  grannies , the list goes on), the steep decline in the HK/CN stock prices seem to be consolidating and taking a slight breather for now. Although I have stuck to the plan of disciplined averaging down from July till now, it is never easy to watch your favorite picks go cheaper as new rules are being drafted. It is never easy to stick to your convictions based on the research and thesis of the stocks you hold, and believe you are right amidst the market noise and chaos. Everybody has a plan until they get hit. Then, like a rat, they stop in fear and freeze.You can plan all you want, but you’re going to get hit – probably when you don’t expect it - and it’s going to hurt. ...
Read more