Buffett cuts stake in IBM and shares slide

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Warren Buffett, the legendary investor, CEO and Chairman of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) revealed that his conglomerate sold around 30% of its stake in International Business Machines Corporation (NYSE: IBM).

Buffett had owned 81 million shares, and sold 24 million shares or so, he told Quick, most of it in the first quarter, and some in Q2.

Buffett started to buy IBM six year ago and Berkshire Hathaway was IBM's largest single shareholder at one point.

Buffett bought in at an average price of about $170 per share, and when the shares briefly traded above $180 earlier this year "we actually sold a reasonable amount of stock", he said to CNBC. So the question is should other investors follow suit? As in previous years, the managers of these funds follow Buffett in liking big, profitable companies with strong competitive advantages, but as a group they now have a bit more of a growth tilt.

Munger's influence: Though Buffett and Munger admire famed investor Benjamin Graham, Buffett has credited Munger with pushing him to focus on buying wonderful companies at fair prices, rather than fair companies at wonderful prices.

Berkshire has owned IBM for 6 years and IBM has enjoyed a premium valuation over peers, in spite of deteriorating fundamentals within the business.

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Operating profit, which excludes investment and derivative gains and losses, fell 5 percent to $3.56 billion, or $2,163 per Class A share, from $3.74 billion, or $2,274.

Berkshire and Buffett's assistant did not immediately respond to telephone and email requests for comment. It concerns a decision that will have a tremendous influence on Berkshire's future - and it's something Buffett and the company's board have been intentionally concealing from the public.

Capitalists everywhere will be making the pilgrimage to Omaha this weekend for the Berkshire Hathaway Inc.

While Mr Buffett is known for sticking with stocks like Coca-Cola for decades, he's not wedded to old favorites when circumstances change. "But we have made no commitment that Berkshire will hold any of its marketable securities forever". The odds of success are especially long at Berkshire if Buffett opposes a measure because he controls about one-third of the vote and he's revered by many shareholders.

Two common yardsticks for value investing show IBM's assets being downgraded by the market while estimated earnings have failed to keep pace with the stock price.