Will history repeat itself with Warren Buffett or IBM?

Are Arabian investors missing something here? Why on earth would Warren Buffett buy a $10 billion stake in IBM now?

It seems a departure from his traditional dislike of tech companies because they are so hard to judge into the future and the shares on a p/e of 16 do not look particularly cheap.

His stock filing yesterday also revealed the purchase of a much smaller stake in Intel. That is easier to understand. Intel stock has gone nowhere in 10 years and yet its chips remain at the heart of most computers and the rating on the stock has crashed in the past decade.

We can see that looking forward past the current financial crisis – which may still offer better buying opportunities for these stocks – that Intel offers both growth and re-rating prospects.

IBM reborn

IBM has recast itself as a global software player with a client-base that is reluctant to move. However, it is still a large US corporation whose product line could quickly become redundant if something better comes along, as it so often does in the tech world.

Besides anybody who has studied tech case book history knows that IBM was once the darling of the sector and then gotten overtaken by the young upstarts. IBM was too large and inflexible to change with the times. Now it has a winning strategy that could happen again. History does have a habit of repeating itself.

Then again at 81-years old and with almost as many billions to his name, Warren Buffett has quite a history of picking winners. So you have to judge which bit of history is most likely to be repeated: Buffett getting it right or IBM getting it wrong.