Monday, November 14, 2011

Warren Buffett got special permission from SEC to keep secret his investment in IBM

Buffett disclosed that his company, Berkshire Hathaway, had bought a 5.5 per cent stake in International Business Machines Corp, his first big investment in a technology company ever. Investor Warren Buffett says his company bought about $10.7 billion of IBM stock this year, giving him a more than 5 percent stake in the technology company. MF Global Parent Sued by Former Employees Over Firings MF Global Holdings Ltd., parent of the bankrupt broker-dealer, was sued by former employees who said they were terminated without cause and seek to recover 60 days’ wages and benefits.

Buffett has long refused to invest in high-tech companies because he has said it’s too difficult to predict which technology businesses will prosper in the long run.

But he said he recently changed his view of IBM based on what he read in the company’s annual reports and what he learned by talking to IT departments at Berkshire subsidiaries. He said he should have realized years sooner that the heart of IBM’s business is providing service and equipment to information technology departments.

“There’s a fair amount of presumption in many places that if you’re with IBM, you stay with them,” Buffett said.

So Berkshire bought about 64 million shares since March, or about 5.5 percent of IBM. Buffett says he believes IBM has a sound plan for the future. But Buffett didn't build his $10 billion-plus stake in IBM overnight. He started buying eight months ago, beginning in March. You wouldn't have known that if you had been studiously reading Berkshire Hathaway's filings - known as 13Fs - in which companies must disclose stock holdings. There was no mention of IBM in Berkshire's quarterly filing in April, nor in August. Instead, if you were looking carefully, you might have a found an odd footnote that said: "Confidential information has been omitted from the form 13F and filed separately with the commission."

Translation: Buffett received special permission from the SEC to keep secret his investment in IBM - and possibly keep secret stakes in other companies that he is building positions in that we have yet to learn about.

Buffett's special treatment from the SEC is not new - he has long taken advantage of an obscure rule to avoid disclosing his bets to the public before he is good and ready.

Buffett - and other billionaire investors like Carl Icahn, Bill Ackman and Nelson Peltz - essentially argue that the simple disclosure of an investment would cause the price to rise so much as to scuttle their strategy.

The rule says that the SEC "may prevent or delay public disclosure of form 13F information for public interest reasons or the protection of investors."

In this case, the rule is clearly meant to protect the investor - Buffett - not the public.

John Nestor, a spokesman for the SEC, said the agency tries "to balance the benefits of transparency of how large managers invest with the need to temporarily protect the legitimate confidentiality interests of managers in limited circumstances."

Buffett, in an interview, asked me, "How would you feel if you had to announce every story idea you had?"

He said he did not believe public investors should always be allowed to piggyback on investment ideas made by professional investors, especially before they are finished buying.

"There are only about three people I'd like to know what they are doing," he said. "But I don't feel entitled to know." He paused for a moment, "In fact, I think it would be unfair."

Still, at a time when investors are asking for more and more transparency, there is a sense that the playing field on Wall Street is tilted toward the wealthy. Under the Securities and Exchange Act of 1934, all big institutional investors - now defined as managing over $100 million - have

to disclose their holdings every quarter. Investors who buy up more than 5 per cent of a public company typically must file a separate 13D filing when they accumulate the shares.

One of the reasons for the rules is to prevent an investor from mounting a covert takeover effort; another is so average investors know where big wheels are moving their money.


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