Warren Buffett has sold a lot of Apple stock so far in 2024

Posted:
in General Discussion edited May 6

Famed investor Warren Buffett cut his firm's Apple holdings by 13% in the first quarter of 2023, as analyst consensus was that the iPhone was seeing declining demand.

Warren Buffett [Berkshire Hathaway]
Warren Buffett [Berkshire Hathaway]



Buffett is not a long-term investor in Apple -- his Berkshire Hathaway firm only started buying Apple stock in 2016 -- but it became a particularly significant shareholder. Warren Buffett also taught both Steve Jobs and Tim Cook about the value of a company buying back its own shares, which it did again after its latest earnings report.

As first spotted by CNBC, however, Berkshire Hathaway's own Q1 earnings report reveal that it has cut its stake in Apple by 13% over the period. Apple remains Berkshire Hathaway's biggest holding, worth around $135.4 billion.

During the first calendar quarter of 2024, analysts consistently downgraded Apple, in particular because of falling iPhone demand in China.

JP Morgan, for instance, cut its target price and said that while Apple will get a boost from introducing AI features to the iPhone, it won't do so until 2025 and the iPhone 15. Morgan Stanley insisted that it remained bullish on Apple, yet also cut its stock price.

Apple's earnings report on May 2, 2024, did confirm that iPhone sales are notably down in China -- but not nearly as bad as the up to 25% decline that was forecast by some. Partly because of the bad sales guesses by analysts baking in losses into the stock before the earnings, Apple's stock price rose sharply after the earnings report, based on the company's resilience with a mix of hardware and software, and the promise of AI features coming soon.

As a consequence, most analysts have reversed their opinion of whether investors should buy Apple stock. Morgan Stanley was the first to raise its target price again, although its new $216 figure is still down from earlier in the year.

There are signs, however, that Warren Buffett's strategy with Apple may not be related to short term issues with the shares and instead is part of the firm's move away from technology firms. The first calendar quarter of 2024 was the second quarter in a row where Berkshire Hathaway sold Apple shares.

In Q4 2023, the investor sold off 10 million Apple shares. That was estimated to be around 11% of its whole stake at the time.

Buffett has also cut Apple shares before, although in 2021 he said a recent round of selling shares had been "probably a mistake."



Read on AppleInsider

Comments

  • Reply 1 of 20
    ssfe11ssfe11 Posts: 30member
    Half of Buffett portfolio is Apple stock. Yes I said half. That is amazing and there is no way you can’t not diversify away a bit. Way too much allocated to one stock and I’m sure Buffett heard this constantly from the new younger berkshire managers. Means nothing but that explains some of the price drop this year. 
    retrogustowatto_cobra40domityler82FileMakerFeller
  • Reply 2 of 20
    I’m assuming he put the proceeds towards treasuries.  He seems to be stockpiling quite a bit of cash — makes sense given how expensive most share prices are.  He will be ready to pounce once prices come down — and they will.  I can’t see how rates being as high as they are won’t have an effect.  Historically, rates held this high for this long has been a prelude to a recession.  Inflation is still high, and government debt is off the charts — maybe Buffett sees this all coming to a head at some point soon.
    watto_cobra40domiFileMakerFeller
  • Reply 3 of 20
    bushman4bushman4 Posts: 861member
    Apple buying back up to 110 billion in stock is purely a play to bolster its EPS (earnings per share) going forward because they aren’t confident that earnings will rise
    together with Tim Cook and other insiders selling some of their shares along with Warren Buffett selling  13% of his holdings all in the short timeframe doesn’t exactly look positive 
    Time will tell whether Apple can  regain it’s position as #1
    nubusgrandact73
  • Reply 4 of 20
    retrogustoretrogusto Posts: 1,118member
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds, especially since shareholders are taxed on the increased share value at capital gains rates, which (at least in the U.S) are very low. There have been cynics all along the way, of course, but if Apple were concerned about their pipeline and future prospects, they would not be working so aggressively towards a cash-neutral position. 
    watto_cobrabadmonk
  • Reply 5 of 20
    nubusnubus Posts: 412member
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds
    Buying back shares was a terrible use of funds. Apple could have invested in AI like Microsoft or bought shares in MS as the company is performing way better than Apple under Tim Cook. Bought a car manufacturer to actually deliver a car instead of dreaming it and enter the huge market for car financing and services. Even Ford is doing hands off driving something Apple failed to do. How is that possible? Apple could have bought TSMC instead of letting them grow to the point were Nvidia, AMD, Qualcomm, and Intel now all use TSMC. Apple spent a decade as a client investing in output not in control.

    Buying back stocks is a lack of faith in the innovation and business model. Apple should do stuff. Instead Tim Cook has decided to sell products at inflated prices, crawl forward, and return most to share holders. That is how tobacco companies and banks operate. 
    grandact73
  • Reply 6 of 20
    ssfe11 said:
    Half of Buffett portfolio is Apple stock. Yes I said half. That is amazing and there is no way you can’t not diversify away a bit. Way too much allocated to one stock and I’m sure Buffett heard this constantly from the new younger berkshire managers. Means nothing but that explains some of the price drop this year. 
    Yes, most people just don’t understand this.  Speak with any investment advisor and they will most likely tell you to have no more than 10% in any one equity, or even in one particular sector.  When you get above this, it may be time to “rebalance”.
  • Reply 7 of 20
    nubus said:
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds
    Buying back shares was a terrible use of funds. Apple could have invested in AI like Microsoft or bought shares in MS as the company is performing way better than Apple under Tim Cook. Bought a car manufacturer to actually deliver a car instead of dreaming it and enter the huge market for car financing and services. Even Ford is doing hands off driving something Apple failed to do. How is that possible? Apple could have bought TSMC instead of letting them grow to the point were Nvidia, AMD, Qualcomm, and Intel now all use TSMC. Apple spent a decade as a client investing in output not in control.

    Buying back stocks is a lack of faith in the innovation and business model. Apple should do stuff. Instead Tim Cook has decided to sell products at inflated prices, crawl forward, and return most to share holders. That is how tobacco companies and banks operate. 
    Your entire argument would make sense if Apple didn’t have any money leftover after  stock buy backs but the reality is that Apple has a mountain of cash. It’s what they used to buy all of those AI companies (you know, investing in that thing you don’t seem to think they are investing in). 
    lolliverjellybellymichelb76radarthekat40domitmayStrangeDaysFileMakerFeller
  • Reply 8 of 20
    badmonkbadmonk Posts: 1,303member
    nubus said:
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds
    Buying back shares was a terrible use of funds. Apple could have invested in AI like Microsoft or bought shares in MS as the company is performing way better than Apple under Tim Cook. Bought a car manufacturer to actually deliver a car instead of dreaming it and enter the huge market for car financing and services. Even Ford is doing hands off driving something Apple failed to do. How is that possible? Apple could have bought TSMC instead of letting them grow to the point were Nvidia, AMD, Qualcomm, and Intel now all use TSMC. Apple spent a decade as a client investing in output not in control.

    Buying back stocks is a lack of faith in the innovation and business model. Apple should do stuff. Instead Tim Cook has decided to sell products at inflated prices, crawl forward, and return most to share holders. That is how tobacco companies and banks operate. 
    I disagree wholeheartedly, MSFT’s business model works by overpaying for acquisitions
     to expand their products.  AAPL does not have that corporate philosophy and purchases only small companies to bolster in-house development. I have read such bad advice on this forum about what AAPL should do with its cash, buy an automobile company, buy a media company, etc etc.

    Their is a belief among long term good investors that large value acquisitions and mergers actually hurt the individual investor over the long haul because these integrations are really really tough and typically value is not created proportionate to the excessive over valuation of the acquisition.

    There is academic data to back this stance up.

    On the other hand share purchases tell the world that the company believes in its longterm goals to buy its own stock like an individual shareholder.  This goves me confidence that the company is healthy as well.

    A company that has a stock that is at the risk of implosion would never do this.

    Warren Buffet knows this and has done well because of it.
    radarthekatStrangeDaysFileMakerFeller
  • Reply 9 of 20
    jimh2jimh2 Posts: 631member
    nubus said:
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds
    Buying back shares was a terrible use of funds. Apple could have invested in AI like Microsoft or bought shares in MS as the company is performing way better than Apple under Tim Cook. Bought a car manufacturer to actually deliver a car instead of dreaming it and enter the huge market for car financing and services. Even Ford is doing hands off driving something Apple failed to do. How is that possible? Apple could have bought TSMC instead of letting them grow to the point were Nvidia, AMD, Qualcomm, and Intel now all use TSMC. Apple spent a decade as a client investing in output not in control.

    Buying back stocks is a lack of faith in the innovation and business model. Apple should do stuff. Instead Tim Cook has decided to sell products at inflated prices, crawl forward, and return most to share holders. That is how tobacco companies and banks operate. 
    Thanks for your business insights which are all woulda, shoulda, coulda ideas from someone who has no clue what Apple is up to. For that matter none of us do.
    michelb76radarthekat40domiStrangeDays
  • Reply 10 of 20
    jellybellyjellybelly Posts: 123member
    ssfe11 said:
    Half of Buffett portfolio is Apple stock. Yes I said half. That is amazing and there is no way you can’t not diversify away a bit. Way too much allocated to one stock and I’m sure Buffett heard this constantly from the new younger berkshire managers. Means nothing but that explains some of the price drop this year. 
    Yes, most people just don’t understand this.  Speak with any investment advisor and they will most likely tell you to have no more than 10% in any one equity, or even in one particular sector.  When you get above this, it may be time to “rebalance”.
    Young Padawans, look deeper into the world of finance and at what Berkshire Hathaway (BRK)/Warren Buffet invested in AAPL cost compared to their assets, as well as when they invested (2016 through 2018). And learn Buffet’s philosophy of finding companies that are worth holding for a very long time, even if they are so successful as to seem unbalanced proportion of their investment because of continuing success.

    BRK is a holding company of wholly owned subsidiaries (no longer available on the market ) AND partially owned companies ( owning stock). So you’ll see that the CURRENT VALUE of their AAPL shares is 50% of their partially owned companies, referred to as their  ‘stock investment portfolio’.  But that’s less than half of the story. 

    BRK bought most of their AAPL shares between 2016 and 2018 at an average price of $35 per share.  From their Annual Report for 2018, the company assets (largely their investments in wholly owned companies and partially owned companies) were $707,794,000,000.  The cost of the shares AAPL they had purchased was $36,044,000,000 (that was 5.4% of AAPL shares outstanding or market cap at that time, fairly close to estimated 5.6% today or even mentioned elsewhere as 6% of Apple— most of that increase in their ownership due to stock buybacks as they bought little or no more shares after 2018).

    As an investment company, as per their own Annual Report company description, the BRK investment in AAPL was approximately 5.1% of their assets as of the end of 2018. 
    BRK’s cost of AAPL shares as a percentage of their partially owned companies stock portfolio total was 35.04%.  Interestingly however at that time, the market value of their AAPL. shares was only 23.31% of their partially owned companies portfolio. The other partially owned companies were averaging better at that time than Apple. 

    Closing price on Friday ( May 3, 2024) was $183.38.  That is approximately 5.24 times the cost they paid.  That huge increase is how they got to 50% of their partially owned companies or what we call their “stock market portfolio”.  Warren Buffet’s investment philosophy is to invest long term in companies you believe will succeed and grow in value. He buys and holds.  

    BRK’s 2023 Annual Report states Assets of $1,069 billion. With AAPL shares owned by BRK at a value mentioned in this article of $135.4 billion, that pits the current value of investment in Apple at 12.65% of their assets.  

    But the original cost of AAPL purchase was $36.04 billion, putting that original cost at 3.4% of their current assets. Wow!  Remember, their business asset is owning wholly or partially, other companies. That ownership of 100’s of companies is their business—that ownership is their asset.  I’d say BRK/Warren Buffet made a good return on that investment.  

    I’ll go out on a limb and say I believe while they may sell some more of Apple stock, I don’t think it will be much more—I doubt they’ll go below a 4% or even 5% stake in Apple. 

    Your philosophy of 10% maximum in any one company would have had you selling AAPL that you might have purchased in 2018 because it was doing so much better than the rest of your portfolio. Nah, probably not? Or if you invested in 2011 would you have sold the stock
    if it swelled to too much of your portfolio? Don’t forget that between 2020 and 2021 the stock price doubled. 

    I did this research and took the time to write this because your harsh judgement of Warren Buffet really pissed me off.  I really hope you can pull back from any judgement at all and just keep learning long term—it’s a rewarding investment in yourselves (2 of you)  and worthwhile for all of us, myself included.

    I’ve included screen captures of pages from the BRK 2018 Annual Report to show their position with AAPL and their asset statement.  Also is a really nice graphic of companies owned wholly and partially.  The owned companies graphic is cool but shows a fraction of the wholly owned companies and those companies’ subsidiaries. The graphic is from BRK 2021 Annual Report.
    PDF is mind boggling chart of companies and subsidiaries of Berkshire Hathaway.  



    edited May 5 avon b7mobirdFileMakerFeller
  • Reply 11 of 20
    ssfe11 said:
    Half of Buffett portfolio is Apple stock. Yes I said half. That is amazing and there is no way you can’t not diversify away a bit. Way too much allocated to one stock and I’m sure Buffett heard this constantly from the new younger berkshire managers. Means nothing but that explains some of the price drop this year. 
    Yes, most people just don’t understand this.  Speak with any investment advisor and they will most likely tell you to have no more than 10% in any one equity, or even in one particular sector.  When you get above this, it may be time to “rebalance”.
    Young Padawans, look deeper into the world of finance and at what Berkshire Hathaway (BRK)/Warren Buffet invested in AAPL cost compared to their assets, as well as when they invested (2016 through 2018). And learn Buffet’s philosophy of finding companies that are worth holding for a very long time, even if they are so successful as to seem unbalanced proportion of their investment because of continuing success.

    BRK is a holding company of wholly owned subsidiaries (no longer available on the market ) AND partially owned companies ( owning stock). So you’ll see that the CURRENT VALUE of their AAPL shares is 50% of their partially owned companies, referred to as their  ‘stock investment portfolio’.  But that’s less than half of the story. 

    BRK bought most of their AAPL shares between 2016 and 2018 at an average price of $35 per share.  From their Annual Report for 2018, the company assets (largely their investments in wholly owned companies and partially owned companies) were $707,794,000,000.  The cost of the shares AAPL they had purchased was $36,044,000,000 (that was 5.4% of AAPL shares outstanding or market cap at that time, fairly close to estimated 5.6% today or even mentioned elsewhere as 6% of Apple— most of that increase in their ownership due to stock buybacks as they bought little or no more shares after 2018).

    As an investment company, as per their own Annual Report company description, the BRK investment in AAPL was approximately 5.1% of their assets as of the end of 2018. 
    BRK’s cost of AAPL shares as a percentage of their partially owned companies stock portfolio total was 35.04%.  Interestingly however at that time, the market value of their AAPL. shares was only 23.31% of their partially owned companies portfolio. The other partially owned companies were averaging better at that time than Apple. 

    Closing price on Friday ( May 3, 2024) was $183.38.  That is approximately 5.24 times the cost they paid.  That huge increase is how they got to 50% of their partially owned companies or what we call their “stock market portfolio”.  Warren Buffet’s investment philosophy is to invest long term in companies you believe will succeed and grow in value. He buys and holds.  

    BRK’s 2023 Annual Report states Assets of $1,069 billion. With AAPL shares owned by BRK at a value mentioned in this article of $135.4 billion, that pits the current value of investment in Apple at 12.65% of their assets.  

    But the original cost of AAPL purchase was $36.04 billion, putting that original cost at 3.4% of their current assets. Wow!  Remember, their business asset is owning wholly or partially, other companies. That ownership of 100’s of companies is their business—that ownership is their asset.  I’d say BRK/Warren Buffet made a good return on that investment.  

    I’ll go out on a limb and say I believe while they may sell some more of Apple stock, I don’t think it will be much more—I doubt they’ll go below a 4% or even 5% stake in Apple. 

    Your philosophy of 10% maximum in any one company would have had you selling AAPL that you might have purchased in 2018 because it was doing so much better than the rest of your portfolio. Nah, probably not? Or if you invested in 2011 would you have sold the stock
    if it swelled to too much of your portfolio? Don’t forget that between 2020 and 2021 the stock price doubled. 

    I did this research and took the time to write this because your harsh judgement of Warren Buffet really pissed me off.  I really hope you can pull back from any judgement at all and just keep learning long term—it’s a rewarding investment in yourselves (2 of you)  and worthwhile for all of us, myself included.

    I’ve included screen captures of pages from the BRK 2018 Annual Report to show their position with AAPL and their asset statement.  Also is a really nice graphic of companies owned wholly and partially.  The owned companies graphic is cool but shows a fraction of the wholly owned companies and those companies’ subsidiaries. The graphic is from BRK 2021 Annual Report.
    PDF is mind boggling chart of companies and subsidiaries of Berkshire Hathaway.  



    Calm down.  You obviously didn’t actually read or understand what I wrote.  I was agreeing with another post that I took to mean that Buffett selling  shares wasn’t because of any negative sentiment towards the company, but probably just routine rebalancing.  That’s it.  And I mentioned advisors because I’ve run into that advice for years.  I have owned  since 2007, never have sold any shares and only bought more.  It is the highest concentration of my holdings, and this freaks advisors out.  They also have a fiduciary obligation to recommend lowering that concentration.  And the thresholds they have are based on current market value, not cost basis.
    FileMakerFeller
  • Reply 12 of 20
    radarthekatradarthekat Posts: 3,855moderator
    Once you identify the best business, how much would you invest in the second best business?  

    My own allocation, in a very concentrated portfolio.  It’s Buffett who will tell you that diversification is for those who don’t know what they’re doing.  


    FileMakerFeller
  • Reply 13 of 20
    stevenozstevenoz Posts: 315member
    This article starts off with:
    "Famed investor Warren Buffett cut his firm's Apple holdings by 13% in the first quarter of 2023, as analyst consensus was that the iPhone was seeing declining demand."

    Don't you mean "in the first quarter of 2024"?

  • Reply 14 of 20
    Interesting video I just saw posted — interview question about the reasons behind BH selling some Apple shares recently:

    https://m.youtube.com/watch?v=7OG2LBjmNQM

    I had thought that he might bring up rebalancing, but not a hint of this.  It appears that he is looking at the current corporate tax rate (21%) and wanting to lock in that rate with the belief that the rate will increase in the future.  I believe the corporate rate reduction from 2018 is set to expire next year, unless it is extended.  The individual capital gain rate wasn’t reduced in 2018, so any increase of this is unknown, and depends on the elections this year.

    Aside from this, Buffett spoke of building up their cash position.  He didn’t explain why, so I don’t know if they have an acquisition targeted, or maybe they see a recession on the horizon?  

    Thoughts?
    radarthekatFileMakerFeller
  • Reply 15 of 20
    40domi40domi Posts: 98member
    Much a do about nothing, he's sold 13%, which means he has 87% Apple shares left.
    He clearly wants the cash for something, nothing to do with losing faith with Apple.
    I suspect he's found another gem and wants to buy into that, would love to know what that gem is 
    StrangeDays
  • Reply 16 of 20
    Interesting video I just saw posted — interview question about the reasons behind BH selling some Apple shares recently:

    https://m.youtube.com/watch?v=7OG2LBjmNQM

    I had thought that he might bring up rebalancing, but not a hint of this.  It appears that he is looking at the current corporate tax rate (21%) and wanting to lock in that rate with the belief that the rate will increase in the future.  I believe the corporate rate reduction from 2018 is set to expire next year, unless it is extended.  The individual capital gain rate wasn’t reduced in 2018, so any increase of this is unknown, and depends on the elections this year.

    Aside from this, Buffett spoke of building up their cash position.  He didn’t explain why, so I don’t know if they have an acquisition targeted, or maybe they see a recession on the horizon?  

    Thoughts?
    Not long time ago, the corporate tax rate was over 30%. Historical high was 52%. 
    So, your guess is right that the corporate tax rate will most likely to go up as the government will need more money in the future. 


  • Reply 17 of 20
    jellybellyjellybelly Posts: 123member
    Kierkegaarden wrote 
    Calm down.  You obviously didn’t actually read or understand what I wrote.  I was agreeing with another post that I took to mean that Buffett selling  shares wasn’t because of any negative sentiment towards the company, but probably just routine rebalancing.  That’s it.  And I mentioned advisors because I’ve run into that advice for years.  I have owned  since 2007, never have sold any shares and only bought more.  It is the highest concentration of my holdings, and this freaks advisors out.  They also have a fiduciary obligation to recommend lowering that concentration.  And the thresholds they have are based on current market value, not cost basis.

    I actually was replying to Ssfe11 who wrote (excerpt)

    … Yes I said half. That is amazing and there is no way you can’t not diversify away a bit. Way too much allocated to one stock …

    I included your comment as agreeing with him.  I read your comment with respect three times to be sure you seemed in agreement.  And you did say you agreed.   But you mentioned rebalancing his portfolio and I thought you meant it in that context that half was too much.  Now I can see you meant rebalancing for his own reasons after reading your later post  

    I had a thought that perhaps Buffet needed some capital to invest in a wholly owned company that needed a capital infusion to adapt to changing market conditions or to modernize or some such update.  

    You bring up an excellent reference in a later comment regarding tax considerations.  

    I am facing that myself as I have to shed some capital gains each year rather than end up in an emergency say for long term care where a large sale for cash flow would bump me up to too high a tax bracket and affect taxes on other income as well as Medicare higher cost taken out of my social security. 

    I actually know about the market value factor for diversification, but I personally was happy with my assets before they went up about 15x largely through AAPL holdings. Therefore I also consider my original cost diversification as a factor but also have more important considerations in my strategies. 

    Apple has been a port in the storm of 2008–2009, and was one of the first to recover in the 2020 March COVID scare in the market. I happened to see ithe scare coming (only a bit ahead I’ll admit — but due to my biochemistry and medical background including knowledge of previous coronavirus near misses) and sold for a cash position to weather a 3 year bad storm in the market (or more). Then within a month, I saw a hint of recovery, first in Apple and then the tech sector.  So within about a month I re-invested some of that cash in 8% to 9% dividend return stocks to start shifting from mostly capital gain strategy to a mix with more income. But I also shed some capital gains in AAPL by waiting over 30 days to buy back a lot of my AAPL previous position.  When AAPL doubled within a year plus, and my income stocks doubled as well as held their 8%–9% return (to this day in 2024) I felt I’d won the lottery.  And consequently am in a position to donate to a few charitable organizations I’ve donated my time to in retirement.  Any advisor would suggest at 77 years old, I should have shifted to mostly income investments by age 70 or earlier.  But I live comfortably on a frugal lifestyle quite happily and feel grateful I can support my own non-profit entirely plus give to others and still support two disabled children.  

    I liked Radarkat/moderator mention of Buffet eschewing diversification financial advice for more complex and nuanced considerations. The most important consideration is the quality and sustainability of a company’s health and growth, internal mentorship and innovative mindset.  Apple satisfies those qualities better than most others.  While I considered NVIDIA, Microsoft (little publicized Cloud growth) and especially TSMC in 2018 and believed in them then and now, I have no regrets that I didn’t reallocate any AAPL to them.  I think at my age, Apple was the safest bet and I’m so happy with how it turned out. 

    I’m sorry this site sometimes seems difficult to include excerpts of multiple comments and my inclusion/quote of Ssfe11 as the lead comment to which I was commenting dropped off the published content leaving yours as the quote.  I see now you agreed high diversification is what advisors advise but not that it’s to be blindly followed and there are more considerations.  Ssfe11 seems to think they are right and Buffet is crazy to not follow that wisdom, as if any financial advisor would tell Buffet what to do.  I’m glad you have benefitted from your higher stake in Apple. 

    I still found the research on Berkshire Hathaway interesting and it re-affirmed my belief in learning about the quality of the companies you consider for investing. 

    Btw: there’s always the possibility that brokers recommended diversification for as little as even only 5% in any one company because they earned more commissions on 15 to 20 stocks (equals more trades) in your portfolio. I have a friend who is a broker who has hammered me with the 5% as a hard and fast rule.  I have to tune that out  

    But I like, as they say, “dance with one who brought you to the dance.”  

    edited May 6 radarthekatFileMakerFeller
  • Reply 18 of 20
    radarthekatradarthekat Posts: 3,855moderator
    This might be a good spot to drop a pair of essays I wrote back in 2013…

    What I learned from Warren Buffett and 30 years in the market

    But mostly from Warren Buffett.

    PART 1

    INVESTING VERSUS SPECULATION

    It seems the first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many who casually participate in the market.  The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.

    Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation.  To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts.  Here are my working definitions of the two terms:

    "An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact." 

    Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating.  Even if neither rise.

    "Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."

    Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.  

    GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet.  In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers.  Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6.  GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience.  That reinvention, if successful, would materially enhance the value of the company.  If a failure, it would mark the collapse of GTAT as a viable business.  GTAT did fail, and filed for bankruptcy protection.  In the process, the share price went from a high of about $20 to about 40 cents.  Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team.  They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment.  These people were speculating and paid a high price.

    It's those who don't understand the difference between an investment and a speculative bet who always end up convinced the market is rigged. These folks likely put money into one or more companies with business models that represented a speculative bet on some unlikely outcome, lost their money and associated that experience with the entire experience of participating in the market. How many times have you heard someone say the stock market is like a casino? Well, I liken the stock market, at the hands of a participant who has done his/her research and applied appropriate metrics, to a casino where you get to see your blackjack hand and the dealer’s up card before you place your bet and where you have the option of betting big, betting small, or not betting at all on each hand. The odds are strongly in your favor, but you can still do something foolish.  If you get your head on straight, stick to companies that represent a valid investment according to the above definition, and avoid speculation, at least until you have learned the hedging and other strategies associated with successful speculation, you’ll increase both your chances of a successful investment career and your returns throughout that career.

    edited May 6 StrangeDaysKierkegaardenjellybellyFileMakerFeller
  • Reply 19 of 20
    radarthekatradarthekat Posts: 3,855moderator

    What I learned from Warren Buffett and 30 years in the market

    But mostly from Warren Buffett.

    PART 2

    CONCENTRATION VERSUS DIVERSIFICATION

    With the above in mind, you also need to be able to follow, closely, your investments. To follow a business, you need to understand the business and its success factors, its marketplace, its competition, how it compares to that competition, what technological changes are on the horizon that might impact the business, the legal, regulatory, and political landscape associated with the business, etc. Even so-called professional analysts, because they attempt to cover multiple, often many, businesses, nearly always get it wrong on a large and well followed and reported-on business like Apple.  How many people can follow even three companies, in three different industries, with different metrics as measures of success? How many even know the metrics of success for even one company in which they take a position? Stock picking, itself, is for the vast majority of those who participate, casino betting. Diversification, in this context, is appropriate since you would want to limit exposure to any individual bet.

    With the definition of investment in hand, it's a matter of screening for companies that are structurally sound; strong earnings at a relatively low multiple, solid balance sheet with net tangible assets not far below total stockholder equity (i.e., little of the company's assets represented by the Goodwill and Intangible Assets line items), and plenty of cash/cash equivalents to carry the company through downturns or changes in the direction of the business.

    Also look for a history of organic growth versus acquisition-based growth, a strong brand and competitive position, no significant impediments to growth, no significant risks such as lawsuits or potential for lawsuits (think medical device manufacturers and the hip implant lawsuits that have cost them billions), and technological leadership (which can be associated with the company's product technology or associated with process technology or even marketing technology; you want some significant technology lead that gives the company a clear edge).

    There are other things to look for, some that depend upon the particular business. I look for a business that excels in whatever metrics are most critical for success and growth in the industry/segment in which the business participates. And it should be comprehensible to a non-expert in the field; buy what you know.

    The temperament and discipline to stay the course and not get thrashed moving from one stock to another can be bolstered by having strong confidence in the businesses in which you place your investable funds, so knowing the workings of each business and its competitive environment is key. And that leads to the question... how much can you know about 10 businesses versus two or three at-a-time?  The answer is obvious and points to the fact that you should consider concentrating your holdings only when you know a business cold, and diversify your holdings when you don’t.  And leave speculation to those who know how to win at that game.

    KierkegaardenjellybellyFileMakerFeller
  • Reply 20 of 20
    StrangeDaysStrangeDays Posts: 12,912member
    nubus said:
    Since 2012, Apple has bought back shares worth $674.9 billion, mostly at a price well below where it’s currently trading, so in retrospect it looks like a pretty good use of the funds
    Buying back shares was a terrible use of funds. Apple could have invested in AI like Microsoft or bought shares in MS as the company is performing way better than Apple under Tim Cook. Bought a car manufacturer to actually deliver a car instead of dreaming it and enter the huge market for car financing and services. Even Ford is doing hands off driving something Apple failed to do. How is that possible? Apple could have bought TSMC instead of letting them grow to the point were Nvidia, AMD, Qualcomm, and Intel now all use TSMC. Apple spent a decade as a client investing in output not in control.

    Buying back stocks is a lack of faith in the innovation and business model. Apple should do stuff. Instead Tim Cook has decided to sell products at inflated prices, crawl forward, and return most to share holders. That is how tobacco companies and banks operate. 
    The whole “Apple is behind in AI!” line is nonsense. MS and Google have search engine businesses, Apple doesn’t, and doesn’t need silly chatbots. iPhones and MacBooks remain boss, and are not lacking for silly AI gimmick features. 
    edited May 6 Kierkegaardenmuthuk_vanalingamradarthekat
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