BECKY: Wait. Wait a second, IBM is a tech
company, and you don't buy tech companies. Why have you been buying IBM?
BUFFETT: Well, I didn't buy
railroad companies for a long time either. I—it's interesting. I have
probably—I've had two interesting incidents in my life connected with IBM, but
I've probably read the annual report of IBM every year for 50 years. And this
year it came in on a Saturday, and I read it. And I got a different slant on
it, which I then proceeded to do some checking out of. But I just—I read it
through a different lens.
JOE: What's the different lens? What's the
different slant?
BUFFETT: Well, just like—just
like I did with—just like I did with the railroads. And incidentally, the
company laid it out extremely well. I don't think there's any company
that's—that I can think of, big company, that's done a better job of laying out
where they're going to go and then having gone there. They have laid out a road
map and I should have paid more attention to it five years ago where they were
going to go in five years ending in 2010. Now they've laid out another road map
for 2015. They've done an incredible job. First, Lou Gerstner, when he came in,
he saved the company from bankruptcy. I read his book a second time, actually,
after I read the annual report. You know, "Who Said Elephants Can't
Dance?" I read it when it first came out and then I went back and reread it.
And then we went around to all of our companies to see how their IT departments
functioned and why they made the decisions they made. And I just came away with
a different view of the position that IBM holds within IT departments and why
they hold it and the stickiness and a whole bunch of things. And also, I read
very carefully what Sam Palmisamo...
JOE: Palmisano.
BECKY: Palmisano.
BUFFETT: ...Palmisano, yes,
has said about where they're going to be and he's delivered big time on his—on
his—on his first venture along those lines.
BUFFETT: The other thing I
would say about IBM, too, is that a few years back, they had 240 million
options outstanding. Now they probably are down to about 30 million. They treat
their stock with reverence which I find is unusual among big companies. Or they
really—they are thinking about the shareholder.
JOE: But
you're buying this after it's really broken out the new highs this year, new
all-time highs.
BUFFETT: We
bought—we bought railroads on highs, too.
JOE: Yeah?
They sent it—you know, stocks at new lows that, you know, can hit new lows
where they...
BUFFETT: Right.
I bought—I bought control of—I bought control of GEICO at its all-time high.
BUFFETT: No, I
never talked to Sam. I've never talked to Sam. I've got this—I competed with
IBM 50 years ago, believe it or not. I was chairman of a company, had, and I
testified for IBM in 1980 when the government was attacking about on the
antitrust situation. But I've never—I have not talked to Sam or now Ginni.
BECKY: You—this is the
second time in the last several months that you've told us about a purchase
you've made of a company you've been the reading annual reports for years.
BUFFETT: Right.
BECKY: Bank of America was
the first.
BUFFETT: Right. I read those
for 50 years.
BECKY: Read those for 50
years and you're looking at companies a little differently. You never really
bought tech stocks before. You had always said you don't understand technology
stocks.
BUFFETT: Right.
BECKY: Does this mean that
this is a new era and you're going to be looking at a lot of tech stocks and I
guess chief among them, would you consider Microsoft?
BUFFETT: I—well, Microsoft
is a special case because Microsoft is off bounds to us because of my
friendship with Bill and if we spent seven months buying Microsoft stock and
during that period they announced a repurchase or increase of the dividend or
an acquisition, people would say you've been getting inside information from
Bill. So I have told Todd and Ted and I apply it myself that we do not ever buy
a share of Microsoft. I think Microsoft is attractive but that—but we will
never buy Microsoft. It—people would just assume I knew something and I don't,
but they would assume it and they would assume Bill talked to me and he
wouldn't have. But there's no sense putting yourself in that position.
BECKY: But...
BUFFETT: I can say I've
never met Sam but I can't say I've never met Bill.
BECKY: But does this
change the rules of the game that you would actually look at technology stocks
now?
BUFFETT: I look at everything
but most things I decide I can't figure out their future.
BUFFETT: Yeah, it's a—it's a
company that helps IT departments do their job better.
JOE: Yeah.
BUFFETT: And if you think
about it, I don't want to push the analogy too far because it could be pushed
too far. But, you know, we work with a given auditor, we work with a given law
firm. That doesn't mean we're happy every minute of every day about everything
they do but it is a big deal for a big company to change auditors, change law
firms. The IT departments, I—you know, we've got dozens and dozens of IT
departments at Berkshire. I don't know how they run. I mean, but we went around
and asked them and you find out that there's—they very much get working hand in
glove with suppliers. And that doesn't—that doesn't mean things won't change
but it does mean that there's a lot of continuity to it. And then I think as
you go around the world, IBM, in the most recent quarter, reported double-digit
gains in 40 countries. Now, I would imagine if you're in some country around
the world and you're developing your IT department, you're probably going to
feel more comfortable with IBM than with many companies.
JOE: Well...
BUFFETT: I said I competed
with IBM 50 years ago.
BECKY: Yeah.
BUFFETT: We actually
started—I was chairman of the board, believe it or not, of a tech company one
time, and computers used to use zillions of tab cards and IBM in 1956 or '7
signed a consent decree and they had to get rid of half the capacity. So two
friends of mine, one was a lawyer and one was an insurance agent, read the
newspaper and they went into the tab card business and I went in with them. And
we did a terrific job and built a nice little company. But every time we went
into a place to sell them our tab cards at a lower price and with better
delivery than IBM, the purchasing agent would say, nobody's ever gotten fired
from buying—by buying from IBM. I mean, we probably heard that about a thousand
times. That's not as strong now, but I imagine as you go around the world that
there are—there's a fair amount of presumption in many places that if you're
with IBM, that you stick with them, and that if you haven't been with anybody,
you're developing things, that you certainly give them a fair shot at the business.
And I think they've done a terrific job of developing that. And if you read
their reports—if you read what they wrote five years ago they were going to do
and the next five years, they've done it, you know, and now they tell you what
they're going to do in the next five years, and as I say, they have this
terrific reverence for the shareholder, which I think is very, very important.
And
I want to give full credit, incidentally, to Lou Gerstner because when he came
in, I was a friend of Tom Murphy's and Jim Burke's, and they were on the search
committee to find a solution when IBM was almost broke in 1992, and everybody
thought they were going pretty far afield when they went to Lou Gerstner. And
look what...
BUFFETT: Well, you don't
have to think of—you don't have to think of another one, Joe. And if you read
his book, you know, "Who Said Elephants Can't Dance?" it's a great
management book. Like I said, I read it twice.
ANDREW: What was it when
you're reading the report? I mean, most investors who are trying to invest like
you, they're reading annual—what is it in the report that you said, ah, I
missed it?
BUFFETT: Well, it was—it was
a lot of interesting facts and you know, I recommend you read the report, you
know. And I didn't look at the pictures and I'm not sure there were any
pictures. I kind of like that, too. But there were—there were lots of things in
that report but the truth is, there were probably lots of things in the report
a year earlier or two years earlier that you say, why didn't I spot it then?
And I think it was Keynes or somebody that said that the problem is not the new
ideas, it's escaping from old ones. And, you know, I've had that many times in
my life and I plead guilty to it.
BUFFETT: I will tell you one
very smart thing that Thomas Watson Sr. said. I knew Thomas Watson Jr. just a
little bit. Tom Watson Sr., this applies to stocks. He said, "I'm no
genius but I'm smart in spots and I stay around those spots." And that's
terrific advice.
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