Learning from Buffett and IBM

Warren Buffett’s announcement prior to this year’s Berkshire Hathaway annual meeting to sell a third of the firm’s IBM shares spurred a host of headlines, writes Validea CEO John Reese in a recent article for Nasdaq.

In the article, Reese explains that while Buffett is known for his penchant to buy and hold, the article explains how the firm’s partial sale of IBM holdings is aligned with his philosophy around and focus on competitive advantage. Reese quotes Buffett from a recent CNBC interview: “IBM is a big strong company, but they’ve got big strong competitors too.” Reese adds, “When circumstances change, as they did with IBM, Buffett takes notice.”

Reese offers an overview of Validea’s investment philosophy and how it aligns with that of Buffett and other legendary investors. He offers a few key takeaways:

1) Try to develop a “sell” discipline — a non-emotional, systematic way to review your portfolio holdings. If your rationale for buying the stock no longer exists, you may want to consider selling it.

2) There is opportunity cost associated with either holding stocks in your portfolio or holding cash. If you sell, it’s a good idea to have a short list of buy candidates or follow a systematic buying approach like the one we use for the portfolios.