Naturally, the world winced in pain on behalf of Warren Buffett, who through Berkshire Hathaway Inc. (NYSE:BRK.B) held a mind-boggling 68,115,484 shares of International Business Machines Corp. (NYSE:IBM) at of the end of last year.
As fellow Fool John Maxfield so kindly pointed out, it was safe to say Berkshire Hathaway Inc. (NYSE:BRK.B) looked like it was having a bad week as it had “lost” nearly $1.4 billion in a matter of hours. Of course, those were only losses on paper, and John also aptly noted Buffett probably didn’t even flinch on the drop. After all, the Oracle has weathered more than his fair share of market fluctuations since he took control of Berkshire in 1964.
However, I’m willing to take it a step further to say not only did Buffett keep his wits about him when International Business Machines Corp. (NYSE:IBM) fell, but he was probably happy as a clam that day.
You read that right. I think Buffett likely wore a huge smile on his face after he got the news.
Consider Buffett’s own words from his 2011 annual letter to Berkshire Hathaway Inc. (NYSE:BRK.B)shareholders:
Today, International Business Machines Corp. (NYSE:IBM) has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us. Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire Hathaway Inc. (NYSE:BRK.B), cheer for during that period?
I won’t keep you in suspense. We should wish for International Business Machines Corp. (NYSE:IBM)’s stock price to languish throughout the five years.
Buffett went on to give an example of his math and highlights the fact that, given its huge stake in IBM, Berkshire Hathaway Inc. (NYSE:BRK.B)’s slice of the pie stands to grow substantially as International Business Machines Corp. (NYSE:IBM)buys back a massive number of its own shares.
And this example, of course, served as the precursor to one of Buffett’s most oft-quoted statements that year:
The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.
Unfortunately, too many investors have a hard time grasping this seemingly simple logic, so they predictably chime in after one of Buffett’s holdings takes a temporary dive to say he’s lost his touch.