If you’re looking for a company that has demonstrated an ability to successfully adapt to the changing times over many years, consider 103-year-old International Business Machines (NYSE: IBM). The company has been shifting its focus from lower-margin hardware offerings to higher-margin software and services. It’s investing heavily in cloud-computing technologies, with a stated goal to have 40 cloud data centers running in 15 countries by the end of 2014.
Think, too, of its cognitive super-computer, “Watson,” which can actually learn. The possibilities it offers in the fast-growing big-data market are seemingly endless, with potentially revolutionary applications in science, medicine, finance and more.
Another key IBM asset is its pile of patents, which generate more than a billion dollars in royalty income annually. (IBM set a new record with 6,809 patents issued in 2013, its 21st consecutive year atop the industry charts in terms of awarded patents.) And then there is its brand, which ranks third among top global brands according to BrandZ, which pegs its value at more than $107 billion.
IBM recently had a P/E ratio near 12.5 and its dividend recently yielded 2.4 percent. (The Motley Fool owns shares of IBM.)
Ask the Fool
Q: I’ve averaged gains of around 25 percent with my initial stock investments. This short-term success has me wondering what average annual returns I can expect over, say, a 10-year period. Is 12 percent to 15 percent reasonable? – C.B., Cadillac, Michigan
A: Don’t expect any particular number, as the stock market’s moves can be surprising from year to year. Over many decades, though, it has averaged about 10 percent annually. That’s just an average, however, and over the particular years in which you invest, you might average 7 percent, or 13 percent, or something else.
It takes a lot of skill and work to beat the market over the long haul, and even then, averaging 15 percent is ambitious. For perspective, know that stock in Berkshire Hathaway, run by superinvestor Warren Buffett, has averaged about 22 percent growth annually over 52 years. Trying to beat the market is hard. Buffett himself has recommended low-cost, broad-market index funds for most folks. They’ll roughly match the market’s return.
Q: What’s the “wash sale” rule? – J.C., Syracuse, New York
A: The IRS says that if you sell a stock for a loss and buy it back within 30 days, the loss cannot be claimed for tax purposes. Don’t worry, though – the loss isn’t lost forever. You do get to claim it, just not now. The disallowed loss is added to the cost of the repurchased stock, and it’s claimed when the stock is finally sold in a non-wash sale way.
My dumbest investment
My dumbest investment has to have been the first stock I ever bought. It was a local burger chain, recommended in Money magazine. About a year into my investment, I called the local office to try to get my address changed or something, and I learned that I had invested in a different company with the same name. Still, I did well on the investment. So it all worked out fine, but that was blind luck. – J.H., Falls Church, Virginia
The Fool responds: This is a great reminder to be careful when buying stock. Many companies share the same, or similar, names, and many ticker symbols can be misleading, too. You might, for example, expect Intel’s ticker to be something like INTL. Instead, it’s INTC. Meanwhile, Apple’s is not APPL, but AAPL; Coca-Cola’s ticker is KO, not CO; and Hewlett-Packard, after swallowing Compaq, is not HP, but HPQ.
When you decide you want to buy into a company, do a little digging to make sure you’re identifying it correctly – and then get its ticker symbol right, too. You’re lucky your story has a happy ending!