Buffett would take a $2bn hit on IBM shares … if he cashed in now

Multi-billionaire a victim of the cloud and Big Blue's turnaround tardiness

Warren Buffett, one of the world’s wealthiest men and a stock market gambler renowned for avoiding tech bets, is counting the billions of dollars lost – as it stands – after taking a punt on IBM.

The tycoon’s Berkshire Hathaway fund has confirmed some 16 per cent of its $12.3bn cash splash on Big Blue shares over the past four years has evaporated due to the tech giant’s falling market cap.

In an SEC filing, the company confirmed the “unrealised losses” at the end of September (calendar Q3), “included approximately $2bn related to our investment in IBM common stock”.

Berkshire Hathaway said IBM “continues to be profitable and generate significant cash flows” and it is holding firm for better times.

“We currently have no intention of disposing of our investment,” the filing added, and “we expect that the fair value of our investment in IBM common stock will recover and ultimately exceed our cost”.

IBM, along with American Express, Wells Fargo & Co and Coca Cola are among the largest company stock holdings that Berkshire Hathaway owns, accounting for nearly 60 per cent of its total investments.

Buffet acquired the stock in Q1 of 2011 before IBM’s troubles became more visible on the P&L accounts and he topped up the shareholding more recently when the stock price fell further.

Market sentiments moved in Berkshire Hathaway’s favour initially but IBM’s market cap has tumbled by a third in the subsequent four years.

At the last count – calendar Q3 – IBM has reported 14 straight quarters of revenue declines, as it struggles to offset falling hardware margins with services, specifically of the cloud variety.

Just as well that Buffett and his organisation aren’t on the bread line, otherwise those unrealised losses may have become realised losses. ®