Do you sell IBM (IBM) because Warren Buffett sold a third of his position? Do you dump it because he dumped it?
Let me ask you a question first. Did you buy it because he was in it? If so, sure, leave the building and don't let the door hit you on the way out because you should be ashamed. If you bought it because of him, you never knew what you owned anyway, so you might as well be a lemming and blow the darned thing out.
But let me say this. Buffett has every reason to be discouraged. The company has had 20 quarters of revenue declines and Buffett underestimated the competition, which is ferocious. He kept saying that as long as the company kept returning capital through dividends and buybacks, he was thrilled. He talked about how he loved owning more and more of the company because the company kept shrinking the amount of shares outstanding.
It turns out, though, that he didn't love it as much as we thought. He wasn't sold on the strategy because the strategy wasn't paying off.
I didn't like IBM until two quarters ago when it became clear that the company was finally getting to the point where its analytics and cognitive businesses -- the ones with the rubric called Watson -- are making a big difference and producing a sizable amount of growth. You just can't see it because the legacy businesses are so weak.
Now we are at a critical moment for the company. I always felt that as long as CEO Ginni Rometty had the blessing of Buffett, her largest shareholder, she had the time to pull off this monumental change.
Now he's not even the largest shareholder; Vanguard is and Vanguard represents index funds. So she may not be as protected as she tries to get the job done.
But, more important, I am hoping she and her team feel liberated. They have returned so much cash to shareholders through dividends and buybacks that they haven't been able to do the transformational acquisition, the buy of an Adobe (ADBE) or a Salesforce (CRM) or a Workday (WDAY) or even a Twitter (TWTR) -- something so cloud-based that the company's complexion would change overnight. (Adobe is part of TheStreet's Action Alerts PLUS portfolio.)
The company will immediately tell you it has spent billions and billions making smaller acquisitions without compromising what Buffett wants. I have always regarded this as a strategy that keeps the people in the stadium happy but doesn't bring in new investors, which is how a stock goes up.
With Buffett trimming, it now has the freedom to explore the path I have repeatedly pushed for. Let's say Salesforce, Workday or Adobe is now too large. It could buy Twitter to take advantage of its ability to keep track of the feedback for its customers while using the exquisite direct-message function to stay in touch with those clients. It would become a company that in one fell swoop would be more social, mobile and cloud than anyone would think possible.
The only reason why you might sniff or laugh at the Twitter idea is because your image of IBM is the one that so many share, a bunch of old guys in suits. Nevertheless, if you merge Watson with Twitter, you could figure out a course for a client that would be so much better than any of the other analytics companies out there.
I doubt IBM will take my gambit. But I do know this: Twitter now is much better than the Twitter of even a year ago. However, the stock's done next to nothing. With Buffett no longer expressing as much faith as before, why not risk it and make the buy? The current course isn't working when it comes to the stock or the flag planted in cognitive and analytics. Now, IBM's free to trade. Buying Twitter would be just the move it needs to make to say, "Look at us, we have the knowledge, the smarts, and we can integrate this raw platform into the new IBM, not the old one that serially bought back stock and paid a big dividend." It wasn't enough to keep Buffett. Now it's not enough to keep others either. So why not go for it?