Chart of the week: How IBM missed the tech boom

by John Burford from interactive investor |

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Despite the tech boom, IBM shares have gone backwards. Analyst John Burford charts the performance.

I am old enough to remember when International Business Machines (NYSE:IBM) was a hot growth stock. It was in fact a member of the famous ‘Nifty Fifty’ of the 1960s which were considered then to be ‘one decision’ stocks.  And that decision was to buy (and never sell).  Does that remind you of any sector today? Ah yes, some things never change in the investment world.

And the denouement for the Nifty Fifty (a crash in the 1980s) will be mirrored in today’s hottest sectors. The only question is when.

I have a soft spot for IBM as in the 1960s I worked on the cutting-edge lumbering IBM 360 mainframe magnetic tape computer housed in a large air-conditioned room and handed decks of punched cards (using Fortran language) to the clean operators in much the same way as Amazon deliveries are set outside your door today with no human contact. As I say, some things never change.

But I digress. Today, IBM has matured into an income stock. But despite the huge capital share growth in its rivals, IBM has really gone nowhere in recent years.  Here is the revealing seven-year chart.

Source: interactive investor. Past performance is not a guide to future performance.

From the 2013 high at $216, the trend has been relentlessly down.  With lower highs and lower lows, it satisfies the very definition of a bear market. So why are long-term investors buying it? Surely it cannot be for the hoped-for capital appreciation as there has been none over a long time frame.  

In fact over the last seven years, at the current $125, it has mostly traded above that mark. That means most investors buying in the last seven years have seen a capital loss. Hmm.

And the March Corona Crash low in the $90s was last seen at the lows of the 2009 financial crisis. For a share that is firmly in the tech sector, that is some achievement.

Now compare this dismal performance with a close competitor (in the cloud computing sector at least) – Microsoft (NASDAQ:MSFT). This is another US giant but its price performance is on another planet.

Source: interactive investor. Past performance is not a guide to future performance.

With the tech-laden Nasdaq in a manic exponential surge, poor old IBM is stuck to the floor. So if it cannot generate upside given this hurricane-force following wind, what will happen when the Nasdaq does finally flame out?

It doesn’t bear thinking about (pun intended).

For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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