Warren Buffett's Berkshire Hathaway Takes $1B Position in Apple

http://www.wsj.com/articles/buffetts-berkshire-takes-1-billion-position-in-apple-1463400389

by stevenj • 10 years ago

358 252 10 years ago

wsj.com

paulpauper• 10 years ago

it seems like a lot until you realize it's 1/300 of Berkshire Hathaway and 1/550 of Apple

itodd• 10 years ago

It still seems like a lot (to me).

epalmer• 10 years ago

"A billion here and a billion there and pretty soon you're talking real money." often attributed to Everett Dirksen but he denies saying it.

Seems like real money to me.

Edit: fixed typo

nstj6• 10 years ago

And that it probably wasn't Warren Buffett who bought it (he has 2 portfolio/investment managers who he's gradually handing the reins to).

skj• 10 years ago

Then it still seems like a lot, frankly.

tacos• 10 years ago

A little more than 1% of its cash and a little less than 1% of its total equity portfolio.

rcar• 10 years ago

Agreed - if you buy an S&P 500 index, 1/36 of your money is in Apple. (Holdings tab on https://www.spdrs.com/product/fund.seam?ticker=SPY)

Not that big a bet on BH's part.

xapata2• 10 years ago

Not necessarily. The index fund is supposed to track the index. It doesn't need to actually buy the exact stocks as the index, though in the case of the S&P 500, that might be the easiest strategy.

coldtea3• 10 years ago

1/300 of the most valuable company in the world (or close) is still a hell of a lot.

reviseddamage• 10 years ago

What I get from BH signal: Well I don't have to worry and put AAPL into retirement portfolio, although probably means no longer salacious enough for shorts or immediate growth investors.

tedmiston• 10 years ago

... until the car comes out.

In reality, Apple has always been a long for me, and presumably anyone working in tech that invests directly.

shrugger• 10 years ago

I swear this is just for headline generation.

I mean, a billion IS a lot of money, but it's a very small risk on BH's part, and an even smaller part on Apple's.

That amount of money is a lot of money relative to other money, but it's not really a big deal relative to either party here.

However, I think that Buffett is just making a statement of 'look how much I think of Apple' by throwing that bn around, perhaps inspiring other investors?

Not really my preferred science...

nstj6• 10 years ago

Buffett himself quite possibly had no knowledge of this investment

lorenzhs• 10 years ago

Not sure about the downvotes. To quote directly from the article:

"Mr. Buffett has said that large stock picks of above $1 billion are usually made by him, while smaller purchases are made by one of the two managers. They don’t consult with him before making their investing decisions, Mr. Buffett added Monday."

pessimizer• 10 years ago

[misinformation] One or both of the parties saw fit to press release it. It's clearly a favor for Apple. [/misinformation]

edit: For some reason I didn't process that the investment was old, although it's the first few paragraphs of the article.

whatok8• 10 years ago

From the article:

Berkshire’s positions were disclosed in a 13F filing with the Securities and Exchange Commission, a quarterly requirement for investors managing more than $100 million. The report indicates the number of shares held and the value of each stake at the end of the quarter, so it isn’t clear if Mr. Buffett’s firm has continued buying the stock since the quarter ended.

zepto7• 10 years ago

Almost everything on the web about Apple is just 'headline generation', but given the general negativity, Buffet showing confidence is a meaningful signal.

The amount may be small, but Buffet didn't get where he is with random bets.

lujim4• 10 years ago

Took. This happened in March at an average price of $109. Today it is around $93. Berkshire just disclosed it today.

ninkendo• 10 years ago

That's a really good point. Various articles are spinning it as if they bought AAPL because it's so cheap after the nosedive it's been in lately. That's not what the timeline was, and isn't really Berkshire's MO to time the market like that.

gist• 10 years ago

Well we don't know that he didn't buy more at the cheap price as well though. He could disclose today and have bought some on Friday at the lower price.

IBM• 10 years ago

You don't know what price they bought it at, it could have been purchased at any time between Jan and March (where it traded in the mid $90s frequently).

lujim4• 10 years ago

True, good point. AS of March at an AVERAGE price of $109

frandroid• 10 years ago

It's amusing that BH paid the highest price you could pay for this stock in the last few months. :)

brlewis2• 10 years ago

It's probably hard to buy a billion dollars of any stock without driving the price up, even if you spread purchases out.

joelhaus• 10 years ago

Presumably Buffet would respond to you by noting that the stock market is a voting machine in the short run and a weighing machine in the long run. i.e. for the companies he owns, he isn't generally concerned with short term stock price fluctuations.

bpicolo• 10 years ago

Are billion dollar investments in public companies not public knowledge? (Serious question)

lujim4• 10 years ago

Institutional investment managers are required to disclose their investments. In this case it's called a 13F.

Corporate insiders (officers, directors, and employees) need to disclose trades involving their own company.

I don't believe an individual trading his or her own money need to disclose anything to the SEC. I could be wrong though.

mseebach• 10 years ago

I'm pretty sure the rule is around owning a certain fraction of a stock (to make sure it's publicly known if you're trying to buy a controlling stake, because this would affect the price), not the dollar-value of it. And Berkshire owns ~0.18% of AAPL.

jonknee7• 10 years ago

They are once the quarterly 13F reports come out.

https://www.sec.gov/answers/form13f.htm

For smaller companies it can also come out in a 13D which is faster (within 10 days), but only if the investment is more than 5% of the company. That's why there are a lot of ownership stakes of 4.9%.

frogpelt• 10 years ago

Seems public to me. What am I missing?

drzaiusapelord2• 10 years ago

What an odd time to invest in Apple. Its in something of a slump with how it missed the mark on wearables and in something of a milquetoast design/innovation phase in general. When the watch came out Apple was selling for nearly $140. Now its $93. The market is not showing strong confidence in Apple, at least in the short term, and there's nothing on the Apple roadmap that says big growth in the future.

I wonder if this is a sign of the internal politics at BH as 85 year old Buffet gets closer to retirement/death. The younger guys want to make their mark and betting on a typically galloping horse like Apple is a nice way to start the pissing contents with others wanting to run BH after Buffet goes. If Apple does a massive rebound then the guy who made this call will be seen as the young whippersnapper who 'knows tech' and can take BH into the 21st century.

snowwrestler4• 10 years ago

Buying low is not a bad place to start for an investing strategy.

elcapitan• 10 years ago

I thought Buffett doesn't invest in tech companies - is Apple now so much away from tech and so close to being a product like Coca Cola?

wklauss• 10 years ago

Normally he doesn't but he has made exceptions in the past. He has a position on IBM, for example. I wouldn't consider IBM "away from tech".

atestu• 10 years ago

That used to be true, but he's had a stake in IBM since 2011 (which he just increased)

techterrier• 10 years ago

car companies OTOH ?

whafro• 10 years ago

This isn't a huge bet in BH's world, barely cracking their top 20 holdings list, and it barely registers a blip for Apple, but it's culturally interesting to see Buffet make another no-tech exception for Apple, and it will be interesting to see how much that confidence transfers to the street.

Buffett and Berkshire do tend to love companies that generate cash, and Apple certainly does that. They don't tend to chase massive growth, but rather steady climbs backed by real profits. It seems like a pretty reasonable fit.

nstj6• 10 years ago

Does the Buffett "no tech" rule hold for Tedd and Todd, his investment managers?

zrail• 10 years ago

It does not. And it's not a "no tech" rule, it's a guiding principle of not investing in what you don't understand. There's generally something smart to do somewhere in the market that you understand, so why waste time and energy on something you don't? Throw it on the "too hard" pile and move on.

tosseraccount• 10 years ago

Many financial analysts categorize Apple as "Consumer Goods" rather than "Technology".

Example: http://finviz.com/map.ashx?t=sec

bradleyjg• 10 years ago

Apple's PE looks more like one of the old line blue chips that are Berkshire's bread and butter than it does like a high flying tech stock. Right now it has a PE of around 10, Alphabet née Google is around 30, Microsoft 40, and Amazon 288. Even Intel is around 13.

mattmaroon• 10 years ago

Apple was never priced like a growth stock, even when it was rapidly growing. Now that it's flatlined it's as if people expect it to shrink. Even if recent growth trends aren't good, they aren't terrible, and that company spits off so much free cash flow.

SmellTheGlove5• 10 years ago

This is well-stated. I worked for a Berkshire subsidiary for a good chunk of my career, and can tell you the Berkshire values really are what drive the investment. It's not so much about fundamentals, although they do need to be very sound or on the value side, as much as focused, lean management with a clear plan. In this case, I'm thinking Berkshire thinks Apple's share price represents a clear value at the moment (I agree, not that it matters what I think), and there's probably a lot of confidence in the management team going forward. Berkshire doesn't try to catch a falling knife, so they must think otherwise.

spacecowboy_lon2• 10 years ago

Depends if its like BH foray into uk supermarkets which dint end well.

ambicapter• 10 years ago

What's Apple's clear management plan?

coldtea3• 10 years ago

This isn't a huge bet in BH's world, barely cracking their top 20 holdings list

Top 20 holdings still sounds like a substantial bet...

jonknee7• 10 years ago

Not for Berkshire. They hold onto shares for a long time and have less than 50 companies (the ones they really like just get acquired). The new AAPL stake is .83% of the portfolio.

secfirstmd• 10 years ago

Also, BH probably does understand the car industry. And that's Apples next target...

bhouston• 10 years ago

It is totally that. :) They are betting on Apple destroying the existing car makers.

serge2k2• 10 years ago

After the TV right?

jalopy5• 10 years ago

But it is a pretty large bet for Todd and/or Ted, who each manage ~$8-10b. In that light, this is a pretty significant statement about one (or both) of their judgements of Apple's value relative to quoted market price.

aczerepinski• 10 years ago

Good post. This is a bet by Todd or Ted and if you want to piggyback, should be viewed through the lens of how big a bet it is relative to their portfolios. The two of them have generated impressive returns thus far, and are high on my list of investors worth following.

qaq2• 10 years ago

For everyone dismissing this as a small play for BH it's not that small also we have no clue about other possible elements of this position (e.g. derivatives, options etc.).

nstj6• 10 years ago

That logic works the other way also (ie: it could just be some huge long in the stock to arb an options position and therefore be a $0 exposure to Apple stock). Disclaimer: I am not an options market maker so I'm unsure if you can realistically do a delta hedge on 1bn of AAPL.

qaq2• 10 years ago

very true

whatok8• 10 years ago

13F requires you to report all long listed option positions.

11thEarlOfMar• 10 years ago

Seems that there is a significant difference of opinion between Carl Icahn and Warren Buffet.

http://www.bloomberg.com/news/articles/2016-04-28/billionair...

DavidHm• 10 years ago

To be honest I always thought that Icahn was never in for the long term. He just went and raised a ruckus about wanting those $100B cash reserves distributed to stock owners.

zerohm• 10 years ago

I saw a TV segment / interview about Icahn years ago and that was impression I got. His M.O. is to buy a stock, create some attention, and sell, based mostly on the attention he brings, more so than the improvements he makes.

mdasen• 10 years ago

In the article, Ichan noted, "if China was basically steady I would probably go back into [Apple]...I hope one day to get back into [Apple]."

That's not a huge indictment of apple, but rather a concern.

He did note that Apple still looked cheap: http://www.cnbc.com/2016/04/28/icahn-we-no-longer-have-a-pos....

It's hard to read too much into it. For all we know, Ichan wants to play things a little conservative for the rest of 2016 due to big losses in his oil investments.

zhte415• 10 years ago

Very interested in how the trade was executed. A big fish order, was it done in small chunks, by proxies? It was certainly not done in one go.

Experience: Even 10 years back putting when in an investment management team, a $100 million order (of roughly same magnitude for total outstanding) was done painstakingly, often over several days, via various brokers, varying what was done based on intra-hour liquidity. Now, intra-hour liquidity is much less than hours and highly automated, so anyone HFT looking, would be interested.

whatok8• 10 years ago

$1bn~ MV on a very heavily traded stock over a quarter does not seem like it would require any sort of acrobatics on BRK's side. Know nothing about their execution but really doesn't seem to be anything difficult.

tim3333• 10 years ago

Traditionally Buffett works with two or three stock brokerage firms he trusts and tells them to buy the stocks he wants. They often just keep buying when blocks come on the market or it looks cheap. That can go on for months or years. Maybe not so much with $1bn of Apple but his $27bn stake in Wells Fargo for example has been built over some years.

ZoeZoeBee5• 10 years ago

Berkshire Hathaway was down 12% last year, has under-performed the S&P 500 for five years running, bought Apple North of $100, and are heavily invested in the railroads via Burlington Northern which has seen freight revenue dropping for over a year. Which part of this is not true?

corin_4• 10 years ago

Berkshire Hathaway was down 12% last year

It's easy to cherry pick dates to suit your argument.

  12 months leading to end of 2015: down 12%
  24 months leading to end of 2015: up 11%
  36 months leading to end of 2015: up 40%
  
  ~5.5 months between end of 2015 and today: up 8%

Was your statement true? Yes. Misleading? Even more so.

Your other statements... well maybe you're 100% right and not even misleading on those, but after choosing such a bad statement for your lede I'm not going to bother looking them up.

Edit: Actually I was curious enough to look into one more of your "facts". According to Business Insider, S&P 500 doesn't even come close to beating B.H. But maybe you have better data than them. http://static2.uk.businessinsider.com/image/54f4d8a6dd08955d...

ZoeZoeBee5• 10 years ago

Last year refers to 2015, Jan 1st 2015 = $151 Dec 28 end of year 2015 = $133 Not misleading at all.

Berkshire Hathaway’s poor performance in 2015 is noticeable due to the huge underperformance relative to the market. But a closer look at the performance of the company over the past three years suggests that this is something that has been going on for some time. Berkshire Hathaway has actually significantly underperformed the market over the past five years, with a return of 61.4% vs. 71.4% for the S&P 500 Growth Index (the index tracks the performance of large-cap U.S. securities with growth characteristics). http://amigobulls.com/articles/has-berkshire-hathaway-lost-i...

Your Business Insider Chart is a chart of a price index from the day he took over Berkshire, things aren't what they used to be, it was my bad that I did not preface Growth Index, but your conclusion that the first statement was misleading is completely incorrect

Rainymood2• 10 years ago

To get around the paywall, follow this link

http://bit.ly/1VYxVrA

This bit.ly link redirects you to the first google hit after looking for this article on Google. For some reason this circumvents the paywall.

Velox• 10 years ago

Just click the "web" link underneath the title on the comments page.

Rainymood2• 10 years ago

Never knew that. Today I learned. Thanks a lot.

teh_klev• 10 years ago

Better still:

http://archive.is/9Y8jf

nxzero• 10 years ago

Curious, anyone have any info on the relationship between Jobs and/or Cook and Buffet?

Negative1• 10 years ago

And here I was thinking "what a great time to buy Apple stock".

I don't think Buffet is betting on technology. From his perspective he is betting on the car and car brand of the future.

sethev• 10 years ago

Only he knows for sure but it seems a lot more likely from reading his annual letters that he's betting on the quality of their management team and their continued ability to produce profits. It would be very out of character for him to make a bet on future technology.

spinchange• 10 years ago

The stock is trading at a discount to earnings and probably not even that huge of a premium over book value (relative to its peers). Incidentally, it's probably (still) the most valuable and venerated modern consumer brand on earth.

mandeepj• 10 years ago

Not sure why Buffet decided so late to invest in apple. Returns will not be as high as pre iPod or iPhone era

zepto7• 10 years ago

There's actually nothing to support that conclusion.

kasparsklavins• 10 years ago

But profits are higher than ever.

corin_4• 10 years ago

Comparing to past theoretical entry points to buying Apple is irrelevant. I'm not sure why all of us didn't invest in Apple 10 years ago! Oh, it's because it's easier to predict the last 10 years than the next ten years. Just because investing 10 years ago would have been great, it doesn't mean that in 10 years time a 2016 investment in Apple won't also look great.

coldtea3• 10 years ago

Comparing to past theoretical entry points to buying Apple is irrelevant. I'm not sure why all of us didn't invest in Apple 10 years ago!

Shortsightedness?

Without any hindsight involved, 10 years ago the continuous rise for several years seemed inevitable AT THE TIME.

Now it's not so clear.

But it's not because "it's easier to predict the last 10 years than the next ten years".

Rather it's because it was easier to predict the next ten years in 2006 than it is now.

chmaynard• 10 years ago

http://on.wsj.com/1sriCf9

programminggeek• 10 years ago

To be clear, it's not even a technology investment. It's more of a clear, easy to understand investment in a hardware product company with great margins, great marketing, great customer loyalty. It's like investing in Coke.

SixSigma• 10 years ago

Maybe he's gambling on Trump's "onshore your cash or else"

lingben• 10 years ago

"I can tell you this was not a purchase Warren Buffett made. It was one of his two lieutenants"

@BeckyQuick on CNBC this morning

mudil• 10 years ago

Berkshire has too much money and too few ideas as to what to do with it. Why not the second largest stock with tons of untaxed cash? And they can push for tax amnesty to repatriate it.

jalopy5• 10 years ago

[edit]Disclosure - I am a Berkshire Hathaway investor and more intense than average follower of the company and it's top management.[/edit]

This is almost certainly a bet by Ted Weschler or Todd Combs - Buffett's chief investing lieutenants.

Buffett has maintained his aversion to tech as he doesn't "understand"[1] it, and I see nothing to indicate he's changed his mind at this stage in the game.

Also - a $1bn investment is relatively small change for Buffett, but fits squarely within the size range of Ted and Todd's reported $8-10b (each) investment warchest.

[1]: Not "understanding" doesn't mean he doesn't or couldn't understand the technology aspects; rather, it means he doesn't have the ability to see which of the participants will survive and thrive in 10 years time to justify an investment today. IBM is a notable exception.

mathattack3• 10 years ago

I suspect that IBM fits his understanding because he views it as a services company, rather than a hardware or software company. Services he does understand. I think he also likes that they give most of their cash back to the shareholders. (Which makes them a value play rather than a growth play) I was still surprised by the investment though.

jalopy5• 10 years ago

Agree on these points. Also, across the dozens of businesses fully owned by Berkshire Hathaway, he has unique insight into the tech vendors that those businesses rely on. The rumor is that he polled a significant portion of the managers of these businesses which helped to inform his decision that IBM would be around for a long, long time.

banku_brougham2• 10 years ago

IBM is dying, http://www.cringely.com/2016/03/08/whats-happening-at-ibm/

I hope their Apple purchase isn't an indicator of the same.

nashashmi• 10 years ago

he doesn't "understand"[1] it

This! is exactly what made tech such an easy investment growth. Mainstream (2008) investors use three things to size a company: Industry and Market, Challenges, Production. Mainstream didn't get it. Underground did. And they were able to get in early on the action.

In virtually every traditional industry, production is simple and easy to measure, like coal mining for example. "See how quickly you can mine coal and compare that to how quickly you are mining coal."

But in Tech, every new product is a different raw material. The market is tested each time a new raw material is introduced. (Nobody knew the first iPhone was going to be a hit until the day the iPhone was sold, and THEN Apple's stock went up.)

For traditional investors, they don't understand what the question is when a new product is introduced (ex. Kevin O'Leary). The user however does understand. And that is what makes an investment a no-brainer.

However, these days, the traditional investors are not investing in Apple because they get the tech. Instead, they are betting on Apple specifically as a machine for tech production, regardless of product. I still don't think they get it.

stcredzero• 10 years ago

But in Tech, every new product is a different raw material

More like you've gone up 1 level in the tech tree, and tech level n-1 items are the crafting components of level n. (I'm writing a game with a procedurally generated tech tree like this.)

randyrand• 10 years ago

But in Tech, every new product is a different raw material.

This is not just exclusive to tech. Board games, books, Toyota are all are their own 'raw material.'

Judson• 10 years ago

Buffett actually confirmed[0] that he, personally, did not make this trade, and that it was either Ted or Todd (interesting that he didn't specify which).

[0] http://blogs.wsj.com/moneybeat/2016/05/16/berkshire-bought-a...

tossaway1• 10 years ago

did not make this trade

Is trade the right word here? It seems like there must have been lots of trades in order to establish such a position...

mrfusion• 10 years ago

I hadn't heard of Ted and Todd! That's interesting. What would you recommend for further reading?

forgetsusername• 10 years ago

The annual shareholder letters.

http://www.berkshirehathaway.com/letters/letters.html

nikcub• 10 years ago

He could have bet on Apple purely on fundamentals that fit his thesis: well-known brand, moat/protected market, solid management, nothing complicated on the books, solid investor returns/dividends, 40% ROE, in a bit of a dip (both YTD and peak), low-ish PR PE P/FCFE, etc.

It can be evaluated as a value stock like many of his other investments rather than a crazy infinity/100+ PE stock that requires understanding if the tech is viable or not

sliverstorm• 10 years ago

My knowledge of Buffett is that he always wants to understand the companies he invests in, on a much deeper level than fundamentals. From memory, a few of his early winners were found by touring the company's facilities and noticing the company's physical assets (minus debt of course) were worth much more than the market cap.

threeseed• 10 years ago

If Apple continues to strategically invest in startups e.g. Didi then it could also be seen as a VC firm.

eddiecalzone• 10 years ago

Buffett has maintained his aversion to tech as he doesn't "understand" it

I'm not for sure Tim Cook does, either.

MicroBerto• 10 years ago

I'm just here to set in stone and state for the record that I believe this will be a losing play. My reasons are here:

Rationale here from a comment over 3 months ago:

https://news.ycombinator.com/item?id=11035168

last time I was on an airplane (December), every single older woman over the age of 60 had an iPhone. This means that it's not only reached critical mass (the late majority on the technology adoption curve has been achieved), but now it's no longer hip.
I'm not sure what will be next, but I'm guessing it won't be Apple's.
Were I gambling man, I'd have shorted Apple's stock right there after that airplane ride.

So when I'm wrong, y'all can roast me proper.

faraggi• 10 years ago

Those seem like valid suppositions, but I do think you're missing a big variable.

(I think) you only take into account the US Market but the emerging world is late to the party and should represent a big piece of the pie. It hasn't reached majority tech adoption nor is it no longer hip.

That said, I also think its a loosing move because of the downwards trend in AAPL stock- bit that's only layman's conjecture. I guess it depends for how long they want to hold it.

twcooper• 10 years ago

Buffett and his managers aren't concerned about the stock price "trend," they're looking at the stock price in relation to the intrinsic value of the equity. With that said, I'd bet Todd Combs made the investment and he does trade more frequently than Buffett and Ted Weschler.

kfk2• 10 years ago

Be careful thinking Apple will keep sellng iphones and ipads. Their expertise and their cash can probably be thrown into a lot of industries with disruptive success (car industry, pharma, space exploration, etc.). Even the name, Apple, does not bind the company to any specific line of product. I think what the investors are betting here is the ability of Apple of coming up with something as big as the ipod-ipad saga in the coming years. I can see risk in this assumption, but I don't believe is 100% going to turn out badly, so far I'd distribute probabilities equally and do a 50/50 that Apple gives the investors 10x in the next 10 years.

throwaway2048• 10 years ago

You truely beleive that a company with almost the largest market capitization of any company has a large chance of increasing it by 10x?

roadnottaken• 10 years ago

Um, explain to me how their expertise could be thrown into pharma?

snowwrestler4• 10 years ago

Apple is already priced as a low-growth stock (P/E around 10). So if they never do anything more than leverage the brand loyalty of iPhone customers, they'll still fulfill the expectations of their price.

An adoption curve leveling off is a normal thing in business; money can still be made. When did the adoption curves for insurance, paint, homes, jewelry, soft drinks, etc. level off? Long before Berkshire Hathaway came along, but they have done pretty well in all of those of markets.

I think BH has a good chance of getting a return.

cleaver• 10 years ago

I didn't realize the P/E was so low. Sounds like a bargain.

Edit: They're paying a modest dividend as well. AAPL is becoming more of a mature stock, but that's not a bad thing.

kolbe2• 10 years ago

Why can't they slog along with compressed margins for the next 20 years? There are hundreds of viable companies in the S&P 500 that have fully realized their user base, but are perfectly good investments. I feel like SV types get too hung up on growth, and fail to see that producing consistently high profit is still a great way to make money.

ethanbond3• 10 years ago

Why does an older person using something mean that a younger person wouldn't want to?

There's no Android device on earth that's nearly as hip as the iPhone. Regardless of how many old people are on iOS.

exclusiv4• 10 years ago

This happened with Cadillac and they've been spending a lot of money to appeal to a younger demo.

fla• 10 years ago

I dont undertand, why reaching the critical mass would make the business fail ? It's not all about growth

exclusiv4• 10 years ago

It wouldn't make them fail but as an investment the growth could be priced in which is bad if they miss targets.

oskarth• 10 years ago

This is the top comment in this thread at the time of this writing, and it's armchair opinionitis at its best. Put your money where your mouth is if you truly believe what you are saying. Until then your "setting in stone and stating for the record" is completely meaningless.

For one thing you haven't considered that this might be priced into their P/E ratio, unlike most other growth tech companies. If you were a "gambling man" this would be part of the equation in deciding if they are over- or undervalued.

whatok8• 10 years ago

Do you not get out much? Old people been using iPhones since forever.

matt4077• 10 years ago

The efficient market hypothesis would like a word with you.

mmanfrin• 10 years ago

This has zero to do with the value proposition of the stock. AAPLs P/E is below 10 at this point. They have about 1/3rd their value in cash alone, which means their actual P/E is even lower. It doesn't matter if grandmas are using Apple products, they are a seriously good-value stock.

toddmorey• 10 years ago

This all assumes that Apple, who has a solid history of product category pivots, has no plans, ambitions, or interest in entering new markets. Remember how saturated iPods became? Remember when it seemed they were running out of colors and ideas for new music players? The answer was iPhone.

ssharp• 10 years ago

What phone is "hip"? Phones might have reached the point where there isn't going to be another big paradigm shift anytime soon that changes the ways phones are used like the iPhone changed things.

So Apple (and Samsung, etc.) may have exhausted a lot of the growth opportunities in the mobile market, but there are still other markets for them. Apple didn't even have a phone product 10 years ago, so it's hard to say what their future endeavors will be.

Betting on Apple doesn't mean betting solely on the iPhone.

coldcode• 10 years ago

At my church I play in a music group with mostly high school students. Virtually all of them have iPhones. So it's not a good indicator.

dragonwriter3• 10 years ago

Your experience may not be representative of the general market.

http://www.marketingprofs.com/charts/2013/10957/how-iphone-a...

samsonradu• 10 years ago

last time I was on an airplane (December), every single older woman over the age of 60 had an iPhone. This means that it's not only reached critical mass (the late majority on the technology adoption curve has been achieved), but now it's no longer hip.

I think it hasn't yet reached critical mass yet in plenty of second world countries. In Romania for instance there are plenty of lower end phones (specially /w teenagers) not because it's not hip (on the contrary, it yields social status) but because compared to the average wage here it's expensive as hell. The iPhone SE will probably sell heavily around here.

EDIT

An US (correct me if I'm wrong) airport might not actually give an accurate picture of the market since the lower class doesn't fly planes that often.

swalsh• 10 years ago

Let's say you're an owner of one of the nations biggest car insurance companies... and the biggest threat to auto insurance are automated cars. Perhaps the smart thing to do, if you're an investor is to hedge your bests by investing in a company that is likely to dominate the sector.

Of course Alphabet would be a more logical path, so this theory might be bollocks.

maerF0x02• 10 years ago

How are automated cars a threat to car insurance?

robmcm• 10 years ago

Reduction in accidents and auto makers taking responsibility for accidents.

http://fortune.com/2015/10/07/volvo-liability-self-driving-c...

riprowan• 10 years ago

Why should one need to buy a liability insurance policy on a self-driving car?

What driver exactly am I insuring?

verbify• 10 years ago

Less accidents leads to lower premiums.

munificent• 10 years ago

Caveat: I know very little about economics and find this stuff confusing.

Here's how I assume it would work. For an insurance company to be profitable, premium payments need to be larger than claims payouts.

If we assume self-driving cars will be a lot safer, then claims payouts will drop significantly. If we assume insurance companies compete with each other, then that opens up their margins and eventually that will contract again as they all lower premiums to compete.

The end result is a smaller total amount of cash flowing through those businesses. The whole industry will contract because there's just less need for it to exist. You can think of insurance companies like a farm that harvests risk. With less risky automobiles, there's simply less crop for them to reap.

sosborn• 10 years ago

Of course Alphabet would be a more logical path

Why? The only thing we know for sure is that Google has been much less secretive about its desires. That doesn't mean that it is further ahead or has a better solution (and for the record, I'm not arguing if they do or don't).

vadym909• 10 years ago

Wow- This must be hard for Buffett to explain to Bill Gates- his close friend. Did he ever invest in Microsoft?

nicky02• 10 years ago

I'd be surprised if Bill Gates holds ill feelings towards Apple.

chrismarlow9• 10 years ago

Bill and Buffett are smart enough to know you should keep investments and friendships as two different things.

cowsandmilk• 10 years ago

Well, when Bill was in charge of Microsoft, he had Microsoft invest $150MM in Apple, so.... I'm sure he could care less whether Berkshire Hathaway invests in Apple.

Mikeb85• 10 years ago

Not a terrible bet. Their dividend yield is fairly respectable at current prices, the price has fallen to around 2012 levels, and Berkshire mostly likes long-term, stable bets.

I personally don't see Apple doing too much in the short term, but they'll certainly continue to be around, and will probably match the market in returns for the foreseeable future.

bernardlunn• 10 years ago

Apple is now almost a value stock. With an incredible franchise. Don't bet against Buffet

darawk3• 10 years ago

As someone who is short AAPL, my perspective is that they simply don't have room for growth. At the moment, they are essentially a one product company: the iPhone. And yes, that product is insanely profitable, but those numbers are going down, and personally I don't see a way for that trend to change.

Apple has expanded into every available market on the planet (literally). The only way for them to grow at this point is to increase their market share relative to android, or increase world economic growth sufficiently that more people in developing countries can buy iPhones.

Increasing their market share relative to android in any significant way seems incredibly unlikely to me at this point. As technology stagnates (as is happening with smart phones), the premium products lose cachet and the lower-end products start to achieve parity with their premium competition.

The two markets where they could still theoretically hope to achieve more growth/penetration are China and India. But China has been antagonistic to them of late, and has demonstrated an interest in protecting its own incumbents who are now making phones that even Westerners will buy (e.g. Huawei). India on the other hand is a highly tech-oriented culture, and as such has a predilection for customization and control that tends to make them prefer android phones. Not to mention that the CEOs of both Microsoft and Google (the only two competitor platforms to the iPhone) are currently Indian, and both companies have demonstrated a specific interest (especially Google) of expanding in the Indian market. And I think that gives them an advantage that's hard to overstate.

All of this would be fine if the market itself were expanding. But it's not. People are upgrading less and less frequently. This looks to me just like the PC market of 5-10 years ago or so. Things have gotten "good enough" for most people. I certainly no longer feel compelled to have the latest and greatest phone right away, and it seems to me that most people feel the same.

Lastly, there is the possibility that they will create some new category defining product. This is of course a real possibility, but I feel pretty confident that anything they attempt to do in the car market will fall flat on its face. I could certainly be wrong here, but I just don't see how they could possibly offer something so much better than existing cars that i'd want to pay an Apple-level premium for it. Especially when they're competing against someone like Tesla, who has already captured all of the rebellious smart-person cool points in this category.

Of course, I could certainly be spectacularly wrong. And to be honest, if I am, I don't think i'd mind losing the money too much. Because it'd mean that we'd all probably have some cool new product to play with.

brisance3• 10 years ago

Increasing their market share relative to android in any significant way seems incredibly unlikely to me at this point. As technology stagnates (as is happening with smart phones), the premium products lose cachet and the lower-end products start to achieve parity with their premium competition.<

Counter-example in a mature industry: Porsche. When the GTR was launched 9 years ago, people were hyping it to be the death knell of all other performance cars. Instead, today we have a wider selection of very good cars and the GTR is no longer the no-brainer choice for performance enthusiasts. Yes, it still offers good performance-value, but there are other good choices out there as well. Of all the car makers, Porsche was thought to be the most severely impacted by the GTR and yet they have gone on to greater heights.

The two markets where they could still theoretically hope to achieve more growth/penetration are China and India. But China has been antagonistic to them of late, and has demonstrated an interest in protecting its own incumbents who are now making phones that even Westerners will buy (e.g. Huawei)<

How much money is Huawei making from selling Android phones? What about that Google ad revenue in China, how's that doing?

Not to mention that the CEOs of both Microsoft and Google (the only two competitor platforms to the iPhone) are currently Indian, and both companies have demonstrated a specific interest (especially Google) of expanding in the Indian market. And I think that gives them an advantage that's hard to overstate.<

Microsoft's chances at mobile at this stage are as good as Ted Cruz's winning the Republican nomination. Some number closer to zero. Again, how much is Google making from Android phone sales? How are the Nexus sales numbers?

Google's competitor is not Apple. Google's competitor is Facebook. Luckily for Google, Facebook is banned in China too.

I certainly no longer feel compelled to have the latest and greatest phone right away, and it seems to me that most people feel the same.<

The smartphone is a very interesting product. It is used multiple times a day, is cheap enough to be ubiquitous yet still offers value to people who seek to differentiate. In my view this is only the beginning of the smartphone race. Technologies like NFC/Apple Pay are still in their infancy and are not widespread enough. There will be more sensors, better imaging technology, more features that people would desire.

How the differentiation is implemented, matters. You will not find someone cross-shopping Hermès with Coach. Similarly the large majority of people will not cross-shop a Ferrari with a Nissan. That is not to say anything about the value of the brand. It just means there are different markets being served.

darawk3• 10 years ago

Counter-example in a mature industry: Porsche. When the GTR was launched 9 years ago, people were hyping it to be the death knell of all other performance cars. Instead, today we have a wider selection of very good cars and the GTR is no longer the no-brainer choice for performance enthusiasts. Yes, it still offers good performance-value, but there are other good choices out there as well. Of all the car makers, Porsche was thought to be the most severely impacted by the GTR and yet they have gone on to greater heights.

Ya I wouldn't make the mistake of saying that it's the death-knell of the smart phone. I just think we'll be seeing a significant contraction of the market that has driven the insane profits apple has had for the past few years. Certainly smartphones will be a massive and massively profitable product for years to come.

How much money is Huawei making from selling Android phones? What about that Google ad revenue in China, how's that doing?

Much less, even more so in unit terms. I wouldn't invest in Google or Huawei at the moment either. I'm not short Apple because I think those companies are going to do well, I think they're all likely to do poorly. Google and Huawei will expand their market a bit, I think, but their unit economics suck relative to Apple so it won't matter as much.

Microsoft's chances at mobile at this stage are as good as Ted Cruz's winning the Republican nomination. Some number closer to zero. Again, how much is Google making from Android phone sales? How are the Nexus sales numbers? Google's competitor is not Apple. Google's competitor is Facebook. Luckily for Google, Facebook is banned in China too.

Totally agree. Again, I don't expect Google to do well at the expense of Apple. For Google phones are just a way of pushing their services, so gaining market share vs Apple doesn't help them all that much in terms of their bottom line.

The smartphone is a very interesting product. It is used multiple times a day, is cheap enough to be ubiquitous yet still offers value to people who seek to differentiate. In my view this is only the beginning of the smartphone race. Technologies like NFC/Apple Pay are still in their infancy and are not widespread enough. There will be more sensors, better imaging technology, more features that people would desire. How the differentiation is implemented, matters. You will not find someone cross-shopping Hermès with Coach. Similarly the large majority of people will not cross-shop a Ferrari with a Nissan. That is not to say anything about the value of the brand. It just means there are different markets being served.

Ya, I don't disagree here either. I don't expect Apple to lose significant market share in places where they're already established. I mostly expect that the upgrade rate will slow, and they will not gain new market share in India and China. The sum of those two things is a substantial decline in profits for them over the next couple of years.

I could certainly be wrong about all this. It's actually the first time i've ever shorted something, and it's kind of just an experiment to get my feet wet with more exotic trades. I don't claim to be any sort of expert on the subject :).

nikdaheratik3• 10 years ago

1. You could still make money on the short term bet, while BH makes money on the long term bet.

2. BH just doesn't think like that. They don't often invest to sell long term, but are looking for either things that fit into their stable of companies, or are things that are likely to pay a steady dividend over the long run without losing too much value over time.

Since there's no way they're going to be willing/able to acquire a huge stake in AAPL, they're likely planning on just holding onto it and hoping that the dividend + what they sell it at pays back $1B over 10-20 years, which is entirely possible.

louprado• 10 years ago

A bit off topic, but when you buy that many shares of a public company can you negotiate a discount? Is the trade done directly with Apple, or does Berkshire Hathaway just buy it through Nasdaq ?

lujim4• 10 years ago

Let's say you are a private company and want to raise money. Instead of taking on debt you decide to sell some of your business. You will go through an investment bank who will help you quantify the value of your business and underwrite/distribute shares of it to the public. This is the primary market where new shares are created.

After that happens market participants can sell those shares to each other based on supply and demand. As demand for a companies shares rise, prices rise and vice versa. The secondary market is what you and I as individuals think of when we talk about buying and selling stocks. There is no real discount that Apple could offer Berkshire because they aren't selling the shares, market participants are (individual investors, brokers etc). The trade would take place as a complex series of transactions on a variety of exchanges. Sometimes Nasdaq, but other times on exchanges like ArcaEdge, Bats, Direct Edge, NYSE and others.

The complexity is that if you dump 1 Billion dollars into the market to buy x number of shares of AAPL you will drastically increase demand and move the price considerably, so the trade must be executed as a series of transactions over a given time period.

Now if one public company buys another public company in a merger there is a set share price that is negotiated but that's outside of the normal process of buying and selling stocks.

rdancer3• 10 years ago

If AAPL were interested in selling more shares (their cash reserves growth indicates they don't), they would usually sell the whole bunch of them at once, either to one investment bank, or a consortium (who then resell it on the open market). So yes, Berkshire is buying a lot, so instead of selling to Goldman Sachs, Apple may sell to them.

It all comes down to whether both Apple and Berkshire can agree on a price and cash flow that is better than buying/selling on the open market. This would probably not be a great discount for the buyer. Other companies would probably still ask Goldman to broker the sale (at a lower fee) and take care of regulatory compliance, but both AAPL and BRK like to maintain in-depth knowledge of the intricacies of the stock market in-house, so they may just do everything themselves.

EGreg• 10 years ago

This doesn't make much sense to me. I would expect Apple to have nowhere to go but down since a few years ago. I realize this isn't a huge bet, but what are they betting on? Apple for Cars?

Warren Buffett's Berkshire Hathaway Takes $1B Position in Apple

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