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Fat Investments (Or, Why I'm Not Happy With IBM)

|About: International Business Machines Corporation (IBM)
Summary

I'm probably going to start selling IBM this year.

I thought that IBM was going "surf" again but I was wrong.

Sometimes you need to look at deeper truths of a business.

This was originally sent to my private email list: RHODES TO WEALTH.

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I own a healthy amount of IBM (IBM) stock. It's a large part of my portfolio. However, I'll probably start to sell this year. And, I think that cutting my exposure by 50% makes sense.

I've expected bigger changes over the last 2-3 years. But those changes haven't materialized. Despite what many believe, IBM is a powerful innovation machine. The problem has been a lack of "launching" and monetization.

If you look back in IBM's history you'll see that the company was a true leader. Not only with innovation but with product launches. They created products, created new markets, expanded new markets, and just destroyed the competition.

What's more, IBM was a pretty incredible financial machine. I'm not talking about financial engineering, dividends, buybacks or any of that. I'm talking about lending, leasing, and various types of continuity and service fees. Of course, this is still a huge part of their profits.

In any event, I really expected that between The Cloud and Watson that we'd see not only new amazing launches but also outstanding B2B firepower, extracting more and more in the way of service revenue. And, sadly, that just hasn't happened. IBM's been flat as a pancake. Very weak, especially in this bull market.

** shrugs **

I'm leaving out a million things here. But I want to point out that for years IBM was able to "surf" on the tech wave and enjoy market share, profits, and lots of good stuff. As Charlie Munger said, IBM was able to ride these changes for 60+ years. They fell off the surfboard and I *thought* that they got back on.

They did not.

You'll notice that I'm not talking about dividend payout ratios, or book value, or Beta, or shares outstanding, or any fundamentals or technical like that here. To paraphrase Buffett, I'm looking at a fat man and I'm calling him fat. I'm looking at a big hole in the ground and I'm calling it a hole. I'm looking at the river and calling it wet. You get the point.

Sometimes, we just need to look and think and talk it out. I sure hope you've got a clear non-financial picture of each stock investment you've made in your mind. Investing isn't just "money" or "numbers" if you want to get it right.

By the way, I did some research for you about one of my favorite Munger books:

==> Damn Right! Behind the Scenes with Charlie Munger

The price is historically low.

If you haven't grabbed a copy of this I don't know what to tell you. There's material in there that I've never seen ANYWHERE else on Charlie. And no, I'm not going to give that away here. Where's the fun in that?

Speaking of great things...

Here's a note from my journal:

December 1st, 2014:

"Never use 2nd class, 2nd rate ideas when 1st class is available at the same price, or even lower. In fact, weight the risk/reward and pay 'extra' for 1st class if the payoff is superior. Parimutuel thinking rarely hurts the rational mind."

Have a great Tuesday!

Regards,

~ John S. Rhodes
Publisher & Founder
RHODES to WEALTH

p.s. RE: Charlie, I also like Poor Charlie's Almanac. Of course.

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Disclosure: I am/we are long IBM.