Berkshire Hathaway 2018 Annual Meeting Audience Question # 34

Why Warren invested in Apple

Warren Buffett:

OK, Andrew?

Andrew Ross Sorkin:

We got a handful of questions relating to Apple. This is a bit of a mash- up of a couple of them.

Warren, you have bought in and sold out of IBM. You have praised Jeff Bezos but never bought Amazon. And you have doubled down on Apple. Can you tell us what it is about Apple?

And given your sometimes critical views on buybacks, do you think Apple would do better spending a hundred billion dollars on buybacks, or buying other productive businesses the way you have generally preferred? A hundred billion dollars is a lot of money.

Warren Buffett:

I used to think so. The…

Apple has a incredible consumer product which you understand a lot better than I do. Whether they should buy in their shares… they shouldn’t buy in their shares at all, unless they think that they’re selling for less than they’re worth.

And if they are selling for less then they’re worth, and they have the money, and they don’t see an acquisition that’s even more attractive, they should buy in their shares. And I think that that’s very…

Because I think it’s extremely hard to find acquisitions that would be accretive to Apple that would be in the 50 or 100 billion, or $200 billion range. They do a lot of small acquisitions.

And, you know, I’m delighted to see them repurchasing shares. We own… let’s say we own 250 million or so shares. They have, I think, 4 billion, 923 million or something like that. And mentally, you can say we own 5 percent of it.

But I figure with, you know, with the passage of a little time we may own 6 or 7 percent simply because they repurchase shares. And it…

I find that if you’ve got an extraordinary product, and ecosystem, and there’s lots to be done, I love the idea of having our 5 percent, or whatever it may be, grow to 6 or 7 percent without us laying out a dime. I mean, it’s worked for us in many other situations.

But you have to have some very, very, very special product, and… which has an enormous wide… enormously widespread ecosystem, and the product’s extremely sticky, and all of that sort of thing.

And they’re not going to find 50 or a hundred billion dollar acquisitions that they can make at remotely a sensible price that really become additive to that.

And they may find it, who knows? But there certainly, as I look around the horizon, I don’t see anything that would make a lot of sense for them in terms of what they’d have to pay and what they would get.

Whereas I do see a business that they know everything about, and where they may or may not be able to buy it at an attractive price when they repurchase their shares. That remains to be seen.

Incidentally, that’s one thing that I always enjoy. People say, “Well, you’re talking your book,” or something if you talk…

From our standpoint, we would love to see Apple go down in price. They’re going to… well, just put it this way. If Andrew and Charlie and I were partners in a business that was worth $3 million so each of us had a million dollar interest in it, if Andrew offered to sell out his one-third interest at 800,000 and we had the money around, we’d jump at the chance to buy him out. I mean, it’s so simple.

But people get all lost… and if he’d wanted a million-two for it, we wouldn’t pay it to him.
It’s very simple math, but it gets lost in all these discussions. And of course, like I say, Tim Cook could do simple math. And he could probably do very complicated math, too. So, we very much approve of them repurchasing shares.

Charlie?

Charlie Munger:

I think, generally speaking in America, when companies go out hell-bent to buy other companies, they do… they’re worth less after the transaction is made than they were before.

So I don’t think you have a general way to wealth for American corporations to go out and buy other corporations. Averaged out, it’s a way down, not up.

And I think that a great many places have nothing better to do than to buy in their own stock, and nothing as advantageous to do as they can… as buying in their own stock.

So, I think we know pretty damn well what’s going to happen to Apple. They’d be very lucky to
… if there was something available at a low price that they could buy. It’s…

I don’t think the world’s that easy. I think that the reason these companies are buying their stock is that they’re smart enough to know that it’s better for them than anything else.

Warren Buffett:

And that does not mean we approve of every buyback, at all, though. I mean, we’ve seen…

Charlie Munger:

No, no, no. I think some people just buy it to keep the stock up. And that, of course, is insane. And immoral. But apart from that, it’s fine.

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