Warren Buffett has been a value investor all his life and used to say that he does not invest in technology as he does not understand it. However, he invested in IBM a few years back and announced that he is one of the largest shareholder of it. Despite Mr Buffett’s position in IBM, I recommended to sell IBM in 2011 at Seekinalpha.com – where I have been accurately predicting the stock market since 2008 year after year. (http://seekingalpha.com/author/sanjeev-sharma/stocktalk).
IBM stock is down for a long period now – what did Mr. Buffett miss ?
To understand this question, we have to understand what is a value investment fundamentally ?
A value stock is of a company which has “moats” around it – or where the products’ demand would not go down for a long time. A business where rapid changes in technology makes the existing products and services obsolete can never be classified a “value” stock. Though IBM gets a large amount of revenues from services, these services are based on technologies which get obsolete in a few years. Therefore, unless the company is able to rapidly evolve at the same pace as the underlying technology is changing, the company’s products and services cannot remain in demand for very long.
Due to this nature of the Industry, a technology company like IBM can either be a high growth or a low growth company – but cannot remain a value stock for a long time.