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Why it's usually OK when Warren Buffett violates his No. 1 rule of investing

Warren Buffett's No. 1 rule of investing is "never lose money," followed quickly by his second rule — "Repeat No. 1." But it's OK to bend this rule — ignore it during times when a stock is purchased at a price that may seem high and make a short-term decline more likely. Berkshire Hathaway does when it buys stocks of companies that pay hefty dividends and buy back their shares.

Berkshire owns 81 million shares of IBM and another 61 million shares of Apple, a stake that was increased considerably in the fourth quarter. Some consider Berkshire's interest in IBM and Apple a curiosity. Both of these technology giants are leaders in their sectors but many believe their best days are behind them. The world is moving to cloud computing, and people can only own so many personal computing devices. So what could motivate someone to make bullish bets on the futures of these two American companies?

Both IBM and Apple have settled in as slower-growth companies that pay investors back in dividends and share buybacks, enough to compensate for short-term drops in their stock prices.

Buffett's view of stock ownership is that it is the same as company ownership. Buffett considers himself (or, more accurately, Berkshire shareholders) entitled to a certain percentage of IBM's earnings, even though he can't actually ask for the money.

Berkshire owns about 9 percent of IBM, so it should be entitled to 9 percent of IBM's earnings, which were $11.9 billion last year, putting Berkshire's cut at around $1.07 billion. Depending on how much money Berkshire spent to buy IBM shares – say it's close to $14 billion, which is a rough estimate of Buffett's cost basis since he began buying IBM in 2011 – that would be a return of 7.6 percent, the $1.07 billion divided by how much Berkshire spent on the stake.

In his 2011...


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