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Money News

Warren Buffett Says Goodbye to IBM, Hello to Apple

February 15, 2018

  • Warren Buffett has sold nearly all of his IBM Shares
  • He has increased his stake in Apple, which is now a top holding for Berkshire Hathaway
  • Apple and IBM share prices increased following the news
3 min read

Out with the old, in with the new.

That seems to sum up Warren Buffett’s investing strategy for 2018. Berkshire Hathaway, Buffett’s conglomerate company, ditched the stocks of many old-economy businesses, and has instead increased holdings in innovative companies in technology and health care.

What’s in? What’s out?

Buffett eliminated nearly his entire stake in International Business Machines (IBM), once one of the most powerful tech companies in the U.S, famed for its mainframe computing dynamos. Buffett now reportedly owns just 2 million shares of Big Blue, as the company is nicknamed, reducing his stake by 94% as of the fourth quarter of 2017.

Similarly, Berkshire also got rid of 10 million shares of automaker General Motors , and sliced 6 million shares of financial services company Wells Fargo, which has struggled with legal problems and fines in recent years.

Instead, Berkshire has increased its stake in the iPhone maker Apple, purchasing 31 million shares and increasing its stake to about $28 billion. Apple is now reportedly Berkshire’s top holding, representing nearly 15% of its investment portfolio.

Berkshire also purchased more shares of financial services companies U.S. Bancorp and Bank of New York, and pharmaceutical companies Monsanto, and Teva. Both the financial services and biotech sectors have done well in recent months, according to reports.

Why Buffett’s Investment Choices Matter

When Warren Buffett makes change to his investments, people listen.

Buffett is famed for taking a bet on slow-growing companies that increase in value over time.

Buffett, known as the Oracle of Omaha,  because he’s headquartered in Omaha, Nebraska, is one of the wealthiest people in the world, worth an estimated $87 billion. He built his company, Berkshire Hathaway, from a small cloth mill and manufacturer in New England, to a multi-billion dollar enterprise whose stock has increased by 1.8 million percent since the 1960s.

Buffett is famed for betting on slow-growing companies that increase in value over time.

IBM Stock Price

When big investors sell large stakes in companies, that can affect stock price. Buffett had, however, already begun reducing Berkshire’s stake in IBM in 2017, selling one third of his shares in May. At the time, IBM’s share price fell, according to reports.

“I was wrong … IBM is a big strong company, but they’ve got big strong competitors too,” Buffett told CNBC in the spring. “I don’t value IBM the same way that I did six years ago when I started buying … I’ve revalued it somewhat downward.”

Following the news on Wednesday, IBM’s stock actually increased 0.6%  to $155 a share in early afternoon trading on Thursday. Similarly, Apple’s share price increased 3% to $172.65.*

More Berkshire Hathaway News

Buffett recently made two important promotions at Berkshire. Buffett is 87, and his business partner Charlie Munger is 94. Speculation had swirled for years about who might replace them to run the company. In January,  Buffett made Gregory Abel, 55, vice chair of the company’s non-insurance businesses, according to a company press release. Abel headed up Berkshire Hathaway Energy.

He also promoted Ajit Jain, 66, to be vice chair of the company’s insurance group. Jain was the executive vice president of Berkshire’s National Indemnity Company.

Good to know: Berkshire sold its IBM shares in the fourth quarter of 2017 to take advantage of higher tax rates at the end of last year. It’s a little complicated, but bear with us. Berkshire sold its IBM stock at a loss–year to date, IBM’s share price has decreased 14%.** As a result, that loss can be written off at a higher tax rate amount for 2017, according to Bloomberg.

In December, Congress passed the largest overhaul of the tax code in a generation. The new tax structure lowers tax rates for corporations and wealthy individuals the most.

*Source: Yahoo Finance, February 15, 2018

**Source: MarketWatch, February 15, 2018

 

By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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