IBM: A Wide-Moat Cannibal Is On Sale

When Mohnish Pabrai met Charlie Munger in 2007, he said to Mohnish that an investor could improve his results dramatically by following three recommendations: checking out what other great investors are doing, buying the cannibals and looking at spin-off situations.

The cannibals are those companies that buy back tons of their own shares. As a result, equity holders increase their ownership at the company. Because the number of available outstanding shares in the market decreases, it’s also a way to improve EPS and unlike dividends, it’s also a non-taxable form for investors of reinvesting company’s proceeds; if share buybacks are done below intrinsic value, results are accretive for stake holders.

My interest in IBM started once Berkshire Hathaway (BRK.A)(BRK.B) bought a huge stake in Big Blue, acquiring more than 68 million shares since first quarter of 2011, a 5.5% stake, at an average price of USD$170.

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