Seeking Alpha
What is your profession? ×
Profile| Send Message|
( followers)

After Buffett’s firm brought 5.6%, or $10 billion worth, of IBM (NYSE:IBM) shares, many investors decided to follow in his footsteps and expected to make profits.

We need to understand the context of Buffett’s investment. Berkshire (NYSE:BRK.A) owns about 80 subsidiaries, including insurance, railroad, utility firms, etc. We can expect the company to have a pretty diverse portfolio.

Berkshire often delays reporting the full picture of its new investments to the SEC in order to to buy time while building up a position. Imagine how much more profit Berkshire would accumulate if more investors were able toto follow a similar move during that time. Investors are more likely to buy IBM at the higher price. It is important to buy it at the right price.

The Elliot Wave theory states there are five waves in the stock market. Waves 1, 3 and 5 are the primary trends, while waves 2 and 4 are corrective. Investors need to buy stocks after the correction, assuming the stock price will go up. There is no a clear-cut way to know the percentage magnitude of a correction. Correction will most likely occur because Berkshire is better informed than the majority of investors. Also, people may liquidate their positions after some gains or losses.

Buffett invested in multiple steps to stay competitive. He may increase his position in a stock, or stay or liquidate any positions after they have developed considerably. Investors need to think about the big picture: Buying a company and buying a stock are not the same thing. Buffett seems to buy a company and influence the management in some ways while maintaining a long-term perspective. We may also see some synergy in the shares Buffett owns.

Buffett's investment decision is derived by a sound financial plan for the future, including IBM's sustainability and competitiveness in the market. He understands market timing and has been buying aggressively during the recent financial crisis. He also exercises some bargaining power when buying shares; the average investor doesn't have that influence.

As a result, it is getting more important to buy at the right share price, at the right time, and for the right reasons. The investment strategy will differ according to your time horizon: short, intermediate, or long term.

I would recommend placing a buy order in the $150 to $170 range, and adjusting your investment strategy in accordance with your financial goals.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.