Is IBM the Bear Stearns Canary?
And how does Jim Cramer & Warren Buffett figure into this?
In 2008, on a pleasant spring day, I listened to Cramer for the first and last time.
He thought Bear Stearns was a buy, but the next day the princes turned into a cockroach.
18 years later, something similar may have occurred with IBM
Jim Cramer is a great barometer of the health of the market, and among the greatest salesmen you will ever encounter. I would buy anything from him. Except the goatee (He’s not Billy Joel).
And in 2008, no one would have believed that the storied legacy investment banks would ever go broke. Problems, yes. But not broke. The same Bear Stearns that started in 1923 and weathered every collapse, crash, market disaster there ever was in the 20th century. 85 years gives it a bit of street cred.
IBM, founded in 1911, or 115 years ago, but technically the company we know today was formed in …
1923
may also be in that same boat as Bear Stearns was in 2008.
Coincidentally, his show is hosted at the Debary Inn, which was founded in 1923, and his father was born in 1922.
All I’m saying is that any recommendation Cramer concocts is related in any shape or form to that year. Run away.
Because software and computers have been the Cinderella for our generation, and that would be the black swan that they just don’t have the mojo as they once did.
Which takes me to Warren Buffett and his mentor, Benjamin Graham.
Benjamin Graham loved giving IBM as an example since his first edition of 1934, Security Analysis, of a growth company he either loved, missed, or found overvalued.
“At that time, Ben was quite emotionally interested in this company, as he was one of the few financial guys who had seen and used them. He thought quite highly of the company’s products and potential. In early 1916, he recommended this stock to his boss. At that time, the stock was selling in the mid-$40s (for 105,000 shares). Earnings in 1915 were $6.5; its book value, including some intangibles, was $130, with starting $3 dividends. His boss replied, “Ben, do not mention that company to me again. I would not touch it with a ten-foot pole. Its 6% bonds are selling in the low $80s, and they are no good. So how can the stock be any good? Everybody knows there is nothing behind it but water.”’ - excerpt from GuruFocus
So, 90 years later, this excerpt may prove to be true.
But Warren Buffett, his student, sees a future for the online world as he steps over IBM's miss and is now $30 billion in the hole with Alphabet (Google)
Does he see something that we do not?
Will Alphabet perform better than Apple’s investment?
Will Alphabet perform as well for 100 years as it did for just 30?
For the first time in its history, it has taken on debt.
So from my presentation, I suspect Berkshire overpaid for the rights to Google’s shares
and jumped in on yesterday’s hot prospect.
But I would never discount the unique touch and vision the culture of Berkshire brings to the table. And take the time to study the facts and not a CNBC interview, as I don’t think they are useful in the same way Cramer isn’t.
But when it comes to selling, Cramer and Warren Buffett are legendary.
Make it like it’s 1923, and start something special
Eric
Any thoughts to add to this? Love to hear
