If IBM were still in the PC business, subby would have made a brilliant joke.

I think he said this morning on CNBC that he bought it for an average of $170 a share. So... he's made about a $1B profit so far, which is not too shabby IMHO.

IBM's share price was relatively flat from '79 until '96. It rose once IBM abandoned the shrinking margins of the PC business and chased the fatter margins of business consulting and services.

Biz fail, subs.

Buffett isn't big on tech stocks, so this one is a little odd. Then again it's not like IBM is some fly-by-night dot com like Groupon or Zynga.

FlashHarry: MrEricSir: Buffett isn't big on tech stocks, so this one is a little odd. Then again it's not like IBM is some fly-by-night dot com like Groupon or Zynga.

that's exactly it. buffet likes blue chips. plus, he does due diligence like nobody's business.

If you read his comments more closely, his reasoning is basically this: in talking to the CIOs of the companies he is invested in, he discovered that they in turn depend heavily on IBM. So since he is already invested in IBM's success second-hand, so to speak, he figures he might as well invest directly and enjoy better leverage.

Also, Buffett has correctly assessed that IBM is not a "tech" company in the sense we usually think of; it is a broad "business services" company, except that some of those business services are delivered as hardware, some as software, and some as consultant hours. Whatever technology comes along in the next 20 years, you can bet that IBM will do business in it.

It is a totally different proposition from, say, Groupon, which can have a paper value in the billions today and tomorrow be the next Webvan; or many of the Web 2.0 companies that O'Reilly and Techcrunch like to award prizes to that have a novel website, or even merely a novel feature on a website, not a business; all of which Buffett is dismissive of on the grounds that even if some of them turn out to be huge, he has no way of assessing their value.

TheSpaceAdmiral: Arkanaut: If IBM were still in the PC business, subby would have made a brilliant joke.

What the heck are you talking about? The joke doesn't require them to be in any particular business.

IBM is an extremely profitable business with a low P/E ratio, and is a great investment. The joke -- as I imagine many people would interpret it -- requires people to have a perception of IBM as the old, stodgy computer maker that was outpaced by Dell, Compaq, etc in the 90's, but it has left that business model behind when it sold its PC division to Lenovo in 2005. Now it's basically a general consulting firm with technical specialties.

TheSpaceAdmiral: Um, no, the joke was supposed to be that buying in 1979 would have been guaranteed to be a great investment (as I noted above, I was wrong about 1979 being a trough). I don't understand your interpretation at all, since the headline makes perfect sense if you replace "IBM" with "McDonald's," which has never been in the PC business.

Well if the joke didn't work in the first place, I guess there's no point in arguing over which company it would work for.

TheSpaceAdmiral:

Alright, I admit a fail. No excuses.

In my (limited) defense, I did plop a couple of random years into this to try to find a trough, but obviously I made a mistake. I must have assumed because July '79 was so much lower than '78 that it was a good trough.

Don't beat yourself up about it. Most submitters are trolls these days. I'd say you're an improvement.