I am interested in your “rationale” for selling IBM.”
Reader Bob wrote a lengthy response to my decision to sell IBM, and I briefly excerpted from him. My response has to do with my previous reliance on one analyst who had convinced me they would turn their ship around, and they have been great to shareholders… except, of course, for their share price! The following is excerpted bits from this analyst’s reversal on IBM:
“…some of the world’s largest corporations – which have been around for decades – are transitioning away from the massive in-house IT systems IBM specializes in and toward online accounts. As a result, IBM’s revenues are in a steady and steep decline. Big customers are leaving for low-priced alternatives. IBM finds itself in a price war with three much younger, much-faster-growing competitors. IBM has been the one-stop custom IT services shop for hardware, technology infrastructure, hosting, and consulting services. But in the age of the Internet, customers are moving away from these expensive services to the cheaper “cloud computing” option. IBM’s three biggest competitors in the cloud industry are Amazon Web Services (“AWS”), Microsoft Azure, and Google. They’re eating up IBM’s IT-services business by offering cheap cloud-computing services… and they’re growing much faster as a result. IBM no longer has the sticky sustainable competitive advantage it had many years ago. That’s what’s most wrong with IBM. Its way of doing business is finished. And it has failed to adjust soon enough or radically enough. IBM’s cloud-computing services are still generally priced higher than the rest. Higher pricing will make it harder to grow that business… which it must do fast, since a significant portion of its revenue stream is disappearing. With multiple companies fighting to offer the lowest price, it’s much easier for big companies in search of IT vendors to find cheap alternatives. IBM’s one-stop-shop service is a relic from a bygone era. There are other ways to do IT services today.”
Those were snippets, and only from the first couple of pages. I didn’t even read the rest for more. This guy also included a list of the 10 largest customers they’ve lost in recent years… and they are HUGE! So, I hope enough said. The analyst I’m quoting used to be a fan of Big Blue, but reversed his position, after touting IBM for a long time. I stuck with IBM, because this guy did, and because they have been wonderful to shareholders. It met my purchase criteria long ago, when I first scouted out my buys, but it’s EPS line had turned down long ago, and has not ever seriously made any turn back up. Bob also wanted to know what my loss would be… no one likes to talk about such things, but it will be my worst, because I held this long, and because I was wanting to trust this analyst’s work… so, it looks like I’ll be taking a 34% hit on IBM. But, I’ll have offset the loss with the gains I’ve locked in while selling some winners here lately, too. That’s a 34% loss on a 5% sized position, or not 2% of our portfolio’s value! I’m really going to kick myself hard, right?
There’s a lesson to be learned here. Rely on your own analysis to find ’em, and only keep ’em as long as the reason you bought remains valid. I trusted someone else for my reason to stay with IBM… never again!
Here’s to your successful investing!
Harold F Crowell