International Business Machines Corp. (IBM), JPMorgan Chase & Co. (JPM): The Buy & Hold Test, How Buffett Wins

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Warren Buffett never changes his strategy and is right more often than not. As net worth returns to pre-recession levels, it’s important for investors, (especially ones who lost a ton of money), to ask the question: Did Buffett’s buy and hold strategy help him beat the market? Let’s take a look at a few sectors to see if his strategy still works.

Buffett’s strategy

If you read any of Berkshire Hathaway Inc. (NYSE:BRK.A) annual reports, you’ll find Buffett’s rules to investing, eleven statements Buffett swears by on every investment. Boil them down, and you are left with this: partner with strong management and don’t sell a good business, regardless of price. The company’s A shares are up $100,000 since its bottom in 2008, a level now about 20% higher than its prerecession peak. Sounds like Buffett’s strategy works, right?


Warren BuffettThere are many big players and market movers in the the technology sector. To give a fair look at the buy and hold method, let’s review International Business Machines Corp. (NYSE:IBM)’s recent history. Simply put, since hitting a low of $75 late in 2008, International Business Machines Corp. (NYSE:IBM) recently rebounded to an all-time high of $215 per share in early 2013. This rebound, isn’t due to general market movement either.

International Business Machines Corp. (NYSE:IBM) is recording stronger earnings at $2.70 per share last quarter, refocusing itself on its mission and constantly pushing the limits of science. From its 2007 peak of $128 per share to it’s current price, International Business Machines Corp. (NYSE:IBM) returned faithful investors 67%. International Business Machines Corp. (NYSE:IBM) isn’t the only tech company that found its way over the last five years. The technology stocks in the Dow are up 50%, since 2008.

That’s 1-0 for the buy and hold method.


Next, we turn to the sector hit hardest by the recession, and earnings which drive 45% of the S&P 500. JPMorgan Chase & Co. (NYSE:JPM) took a huge hit as the recession raged on, falling just over 40%. While JPMorgan Chase & Co. (NYSE:JPM) received $25 billion in government bailout money, the company’s leaders took a hard look at their structure and made numerous changes.

JPMorgan Chase & Co. (NYSE:JPM) acquired Bear Stearns and Washington Mutual in 2008, and metaphorically righted its ship. The acquisitions added valuable customer deposits, banking relationships, and even real estate to its balance sheet. Further, at around $55 per share, JPMorgan Chase & Co. (NYSE:JPM) is currently trading above its 2007 high.

It should be noted that other financial companies such as Bank of America and Goldman Sachs are not bouncing back from the recession as well as JPMorgan Chase & Co. (NYSE:JPM). While strong earnings have pushed both stocks up 10% to 15% in 2013, neither has been able to return to pre-recession levels.

As shown below, Bank of America (currently trading around $13.00 per share) is still trading at a 74% loss compared to 2007. Likewise, Goldman Sachs (currently trading around $156.00 per share) is still running a 31% loss from 2007 peaks. Given this mixed bag of results for the financial sector, it’s tough to give a score for Buffett’s buy and hold method.

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