International Business Machines Corp. (IBM): Warren Buffett’s Worst Investment?

Warren Buffett of Berkshire Hathaway has been an investing machine for five decades, delivering stunning returns during that time. A mere $1,000 invested with Buffett back in 1964 would be worth over $10.4 million today. However, Buffett’s more recent history has not been nearly as strong. In fact someone who invested $1,000 with Buffett 19 years ago would have a mere $2,841 today; not exactly stunning returns over a period of that length.

Buffett has been accused in recent years of losing some of his former conviction, which was most recently characterized by his entry into several airline stocks, which he had previously categorized as a “death trap for investors”. However, it was his mammoth investment in International Business Machines Corp. (NYSE:IBM) back in 2011 that first raised questions, after Buffett had been largely tech-averse for decades, stating that he knew nothing about tech stocks and only invested in companies he understood.

Fast forward six years, and the IBM investment is looking like one of his worst ever, one which he appears to finally be giving up on after telling CNBC yesterday that he has unloaded 30% of his IBM stake this year, mostly during the first quarter. The stock has fallen by 2.5% today in response.

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For years, pundits wondered when Buffett would admit that he had made a mistake and get out of International Business Machines Corp. (NYSE:IBM), as the stock drifted to under $130 per share, well below the average cost of $170.43 that Buffett paid for his 81.23 million-share stake in the company over the years. That mark was finally surpassed again earlier this year for the first time since October 2014, and it appears that Buffett used that opportunity to finally unwind some of his stake.

Nonetheless, Buffett is still stuck holding 70% of his former stake with IBM back down to $155 per share, so Buffett’s investment is still firmly in the red even after nearly six years of having over $10 billion in capital tied up in it, making it an unmitigated disaster no matter how you slice it.

Obviously, it’s impossible to invest in stocks for five decades without some turds making their way into one’s portfolio, and International Business Machines Corp. (NYSE:IBM) isn’t Buffett’s first, though it could end up being the biggest. Buffett reported losing $444 million after taxes on his investment in Tesco, which was sold off in 2014, and has previously suffered losses equal to 1% of Berkshire’s net worth three times (which today would equate to a loss of over $4 billion). While Buffett’s IBM stake is unlikely to end up in 1% losses, it could still end up being the largest in terms of actual dollar value lost.

However, many years ago, Buffett described his worst recent mistake as being a non-investment in a stock. Buffett wanted to invest $100 million in Wal-Mart Stores Inc. (NYSE:WMT) at $23 per share, several stock splits ago. The price never came back to where he was stubbornly waiting for it, which ended up costing him about $10 billion (he was assuming he would’ve held on to it until he had made that comment in 2003, which is not unlikely given his long-term value investing philosophy). Buffett did end up finally taking a big stake in Wal-Mart in 2005, selling off much it during the fourth quarter of last year at a modest profit.

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