From Peter Tchir of TF Market Advisors
A Little Thursday Morning Conspiracy Theory Fun
To most Americans, the stock market is the Dow Jones Industrial Average. Whether professionals follow it or not, it really is what most Americans look at when judging the health of the market. And guess what, it is up over 3% on the year. Yes, the S&P and marginally down on the year, but the DOW, the symbol of the American Market is up.
I found Mr. Buffet's purchase of IBM somewhat interesting. He has avoided "tech" companies for a long time. I understand that IBM has diversified, but it is hard to really classify it as much other than a tech company. Also, for a legendary value investor, find a stock that is up 28.5% YTD, 35% in the past year, and is at an all-time just seemed weird. Again, I understand that sometimes value can be found in the biggest companies, even those trading at its all time highs or that have had massive runs. According to Bloomberg there are 15 analysts with a buy recommendation and 16 with a hold. Not the everyone's favorite stock, but hardly out of favor.
His purchase of BAC was done to make money but also seemed designed to "help" the market. Deciding while in the bathtub to go long a bank with a confusing corporate structure, opaque accounting, and seem real issues, seemed surprising, but at least he seemed to get a good price for that "buy America" investment. Maybe it is a co-incidence that BAC is in the DOW and that purchase also helped drive the DOW higher, but it had limited impact since BAC has such a low weighting.
IBM, on the other hand, is the DOW. Since the DOW is "price weighted" IBM represents almost 12% of the DOW. In a moment of boredom, I took the current weighting of each member and multiplied by their YTD returns. That gave me a 7.3% return of which IBM was 3.5%. Obviously the weightings and adjustments affect how the individual stock price changes over the course of the year, but I think it is safe to assume that 50% of the DOW's out-performance is a result of IBM, and it is unclear how much of that can be assigned to Mr. Buffet's purchases.
He also owns Moody's which didn't join in the USA downgrade party.
Is Mr. Buffet doing more for public policy and morale than all the politicians combined? Should he be doing it, and is he really doing what is best for shareholders in BRK/A? Since 1998 and the LTCM crisis, the shares of BRK/A have done okay, but not sure that anyone would look at the last 13 years and coronate him the oracle? A very smart person, with a very long track record, but is he trying to do too much?
The IBM investment just seemed a bit weird for him, and it is interesting the outsized impact it has on the DOW and hence public perception of the markets. I'm not sure it really means anything, but more interesting to think about than the latest utterance from some unelected EU official.