Warren Buffett educated Tim Cook, Steve Jobs about the benefits of stock buybacks

Posted:
in AAPL Investors edited May 6
Apple CEO Tim Cook shared details about Apple's start of stock buybacks, and has confirmed that Warren Buffett put Apple on the track to do so -- and the "Oracle of Omaha" tried to put the company on the path years before.

Warren Buffett
Warren Buffett


Speaking to CNBC at the Berkshire Hathaway shareholder's meeting in a broadcast interview, Cook elaborated on the time leading up to Apple's decision to start the stock buybacks, and how we ultimately made the decision to do so at the end of 2012.



"I'd been in the CEO spot maybe a year or so, we had a growing amount of cash, we had crossed the $100 billion mark, if my memory is correct. When I don't have experience with something, I make a list of the people that I think that are the smartest people that I can contact to get advice," recounted Cook. "Warren was on the top of the list. As you can imagine, I hadn't met Warren before."

"I get his number, I call out in Omaha, and I wasn't sure that he'd take the call. Call out of the blue, he doesn't know me from Adam," said Cook. "But he took the call, and I had a great conversation with him, and that was the first time that I met Warren."

"He was very clear to me, he said 'let me just cut through it, if you believe that your stock is undervalued, you should buy your stock,'" Cook said, recounting the call. "I thought that was just the simplest way to look at it."

Cook and Buffett also both confirmed during the Berkshire Hathaway shareholders' meetings and resultant interviews that Steve Jobs was also given the same advice about buying back stock. Cook took the advice, and Jobs continued to reject it for years.

The Wall Street Journal called the repurchase programs a "bad investment" in late 2018. That didn't stop Apple from announcing more, with an additional $75 billion program announced during the April 30 earnings announcement.

Other Apple-related tidbits that have come out of the shareholder's meeting include the fact that Apple buys a small company every few weeks, and Apple is now more of a "consumer company" than a tech firm, as it has evolved.

Comments

  • Reply 1 of 16
    LatkoLatko Posts: 398member
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are institutionally different from Berkshire Hataways’
    edited May 6 SpamSandwichavon b7
  • Reply 2 of 16
    SpamSandwichSpamSandwich Posts: 31,504member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.
    edited May 6 davgregchemengin
  • Reply 3 of 16
    KuyangkohKuyangkoh Posts: 373member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are institutionally different from Berkshire Hataways’
    He said he took that advice....why invent the wheel....No body can be Steve but follow his legacy only. Wall Streets only wanted to play and makes money by manipulating and announcing un verifying factoid. So called analysts or experts are paid to spread falsehood.....
  • Reply 4 of 16
    LatkoLatko Posts: 398member
    Kuyangkoh said:
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are institutionally different from Berkshire Hataways’
    He said he took that advice....why invent the wheel....No body can be Steve but follow his legacy only. Wall Streets only wanted to play and makes money by manipulating and announcing un verifying factoid. So called analysts or experts are paid to spread falsehood.....
    Be assured: Luca Dimaestri will know a thing or 200 and more about stock buybacks.
    This is just public Buffett appeasement <=> countryclub gameplay that a product guy wouldn’t be involved in. Hence my ref to Steve
    edited May 6
  • Reply 5 of 16
    ciacia Posts: 86member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.
    As a shareholder for over 20 years, I've seen Apple's stock price rise thanks to solid products and terrific marketing. When income and profits are consistently rising thanks to those factors, buybacks and dividends just add gravy. No complaints at all about the current program. They've bought back 30% of the outstanding shares since 2012. I'd be happy to see another 30% bought back over the next 7 years. Stocks should be a long play. If you are looking for monthly massive increases, Apple isn't the stock for you. If you are investing for 10+ years, Apple is a solid pick. They aren't going away anytime soon.
    tjwolfpscooter63tmayLordeHawkJWSClolliverbadmonkjony0
  • Reply 6 of 16
    tjwolftjwolf Posts: 306member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are institutionally different from Berkshire Hataways’
    Buffet's advice has nothing to do with any particular industry.  A CEO's job is to allocate capital effectively.  If a company has more cash than is necessary to fund current needs and R&D, then the CEO needs to invest that money elsewhere.  A share buy-back is no different from investing in other companies' stocks: you do it if you think that company is undervalued and/or has great growth potential.
    JWSClolliveruraharabadmonk
  • Reply 7 of 16
    maestro64maestro64 Posts: 4,678member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.
    I plan to be the last one standing with Apple stock as long as they do not do something stupid. So as long as the rest of you keep selling and Apple keeps buying my shares keep going up and I keep getting a bigger and bigger dividend check. Yeah buy backs are for institutional investors, not quite since they are not long terms holders of stock and most times will not see the benefit of the buy back. Grant it they jump in and our to collect a dividend. 

    With that said, I was never a big fan of Financial Engineering or the value of company. However, when you look at Apple past and how they make product and attack a market, they would never be seen as Amazon or Facebook with the stock trading 50x to 100x their earnings. There was no way to put that much cash to work trying to grow their business any faster than it was already growing, if they bought things which were too big it would have just dragged the company down. From an acquisition stand point Apple had the highest success rate on ROI. must times company buy another company and never recover their investment and shareholder suffer for it.

    Now we know why Buffet's bought in, Apple generate more cash than any company and if they keep that up Buffet and I will be that last people holding Apple's stock and is trading at $1000/share. Plus Buffet's is collecting $766M/yr in dividends.
    JWSClolliver
  • Reply 8 of 16
    JWSCJWSC Posts: 552member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.
    Perhaps you can educate us on how this is an accounting trick.  And how it satisfies institutional investors (to the apparent detriment of who exactly).  “Dumb use of cash?”  Wow.
    lolliveruraharajony0
  • Reply 9 of 16
    davgregdavgreg Posts: 482member
    The long term performance of companies that waste lots of money buying back their own stock is not good. Take General Electric under Jeff Immelt for example.

    Wall Street likes buybacks because it brings in fees.

    Remember, Wall Street is largely a rigged casino that only occasionally has much to do with the original purposes of the stock market.
  • Reply 10 of 16
    applejakesapplejakes Posts: 48member
    maestro64 said:
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.

    Now we know why Buffet's bought in, Apple generate more cash than any company and if they keep that up Buffet and I will be that last people holding Apple's stock and is trading at $1000/share. Plus Buffet's is collecting $766M/yr in dividends.
    Hey now....I plan to be right there with you also.  If there are only 3 of us holding then you can add several 0's to that $1000!!!

    As it is I believe your $1000 prediction will be way off in 7-10 years.  On the low side of course.  And some of that will be thanks to the buyback.
  • Reply 11 of 16
    radarthekatradarthekat Posts: 3,150moderator
    maestro64 said:
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.

    Now we know why Buffet's bought in, Apple generate more cash than any company and if they keep that up Buffet and I will be that last people holding Apple's stock and is trading at $1000/share. Plus Buffet's is collecting $766M/yr in dividends.
    Hey now....I plan to be right there with you also.  If there are only 3 of us holding then you can add several 0's to that $1000!!!

    As it is I believe your $1000 prediction will be way off in 7-10 years.  On the low side of course.  And some of that will be thanks to the buyback.
    Correction: Four of us.
    kruegdudeapplejakes
  • Reply 12 of 16
    radarthekatradarthekat Posts: 3,150moderator
    People see buybacks all wrong.  “Apple buying back their own shares...”

    Let’s re-phrase that to add just a tiny bit of insight most somehow miss. 

    Apple takes a bit of the cash, which belongs to us shareholders, and instead of giving it directly to us and thereby forcing a tax liability for each of us, it uses that cash on our behalf to purchase for each of us a larger ‘share of the company.’   Did you read that?

    You see, people get hung up on the notion of their personal share count.  I think many people would consider it a good move on their part if they re-invested their dividends and later saw the share price rise.  They see a higher number of shares in their account and a higher share price and that affirms their choice to buy more stock with the cash Apple paid out to them.

    Of course, share buybacks have exactly this same affect, just without the intermediate step of having the government step in and claim 15-20% off the top after the cash is paid out but before it can be used to buy more shares.  

    The other difference is that rather than increase the number of shares the shareholder owns while the total outstanding share count remains unchanged, in this case the shareholder’s number of owned shares remains the same while the total number of outstanding shares (the denominator) decreases.  Folks aren’t good at math, so let me just tell you, the effect is the same as soon as you stop thinking in absolute number of shares and start thinking in terms of your personal ownership percentage of a business and its future profits.  

    As a long term investor, and this is who share buybacks are designed to benefit, you want your percentage ownership of the business and its future profits to increase.  That’s what you want.  You shouldn’t care whether that’s by your own personal dividend re-investment actions or by management’s actions to buy back shares.  Except there are potentially two advantages to having the company act to increase your percentage ownership over your own ability to do so.

    First, as mentioned above, the tax issue.  You’ll avoid the immediate tax hit, leaving more money to increase your ownership percentage, and over time that extra juice can have a compounding affect in your favor.  As Buffet has stated, every dollar a young man saves and invests can return $20 over the course of his life.  Same principal here on deferring taxes.

    Second, company management knows better than you or I the future prospects of the business (which informs whether to retire shares) and also the likelihood the business is undervalued at any given time (which informs when to retire shares).  

    So share repurchases do exactly what educated and insightful long-term investors would want; to increase their percentage ownership in what they deem a great business at attractive prices while deferring tax liability.  

    Go back and read that a second time.

    Having heard these discussions here for years my view is that those who argue against retiring shares are simply uninformed or unable to see the practice for what it is; a tax favorable and well-timed investment by a business on behalf of its long-term owners.

    Share repurchases also benefit potential shareholders - those considering making an investment in a business.  By removing unproductive cash from the balance sheet and using it to reduce the share count, a business increases the percentage of each dollar invested representing the operating business.  And at the same time increases the ownership percentage represented by each remaining outstanding share.  As a potential investor you want your invested dollars [capital] to purchase an operating business that produces outsized returns, not static and unproductive cash.  

    There was a time a few years ago, back when Icahn was carping, that each dollar invested in Apple shares represented only 75 cents invested in the operating business and 25 cents invested to buy a bit of Apple’s cash hoard.  Most casual investors don’t think about that.  But what if you said to your broker, “please invest $100,000 from my account in this company I feel is a good business” and your broker replied, “sure, but I’m going to invest only $75,000 in the company’s shares and let the other $25,000 sit and do nothing for you.”  You’d question his action, and yet that’s exactly the decision that all of us investors faced, and made, when we bought Apple shares back in those days.  Get unproductive cash off the balance sheet, and put it to good use. 

    Can you hear me now?!!! 

    edited May 6 lostkiwibadmonk
  • Reply 13 of 16
    drewys808drewys808 Posts: 543member
    Latko said:
    Cook should have better followed Jobs’ track and leave finance to the many professionals Apple has. His companies’ interests are constitutionally different from Berkshire Hataways’
    I agree. Buybacks and dividends are generally a dumb use of cash. They should concentrate on growing the value of the stock with continued profitability and market growth, not engage in accounting tricks to satisfy institutional investors.
    Yes, because Cook made the decision to buy back shares all on his own and he didn’t collaborate at all with his financial/legal/accounting experts.  You see how dumb that sounds?

    And why does anyone think that “financial engineering”, or whatever suboptimal name you want to give it, comes at the destruction of continued profitability or market growth?  Did you even bother to look at the balance sheet?  Apple has cash and is not running out of cash... PLUS what would you use the cash for INSTEAD of buying back shares?  Let me guess, buy Tesla and Netflix and Disney. 

    I’m not disrespecting your opinion, but are you listening to yourselves?
    radarthekat
  • Reply 14 of 16
    applejakesapplejakes Posts: 48member
    I feel like there is going to be a tipping point where people start to realize how fast the shares are being retired and the stock price explodes upward.  Where the demand is 100X the supply.  I just don't know when that point will be but I'm willing to wait.  Until then Apple can easily continue to retire 100 million shares or more per quarter.

  • Reply 15 of 16
    knowitallknowitall Posts: 1,459member
    Bad idea, just a senile old man.
  • Reply 16 of 16
    badmonkbadmonk Posts: 838member
    People see buybacks all wrong.  “Apple buying back their own shares...”

    Let’s re-phrase that to add just a tiny bit of insight most somehow miss. 

    Apple takes a bit of the cash, which belongs to us shareholders, and instead of giving it directly to us and thereby forcing a tax liability for each of us, it uses that cash on our behalf to purchase for each of us a larger ‘share of the company.’   Did you read that?

    You see, people get hung up on the notion of their personal share count.  I think many people would consider it a good move on their part if they re-invested their dividends and later saw the share price rise.  They see a higher number of shares in their account and a higher share price and that affirms their choice to buy more stock with the cash Apple paid out to them.

    Of course, share buybacks have exactly this same affect, just without the intermediate step of having the government step in and claim 15-20% off the top after the cash is paid out but before it can be used to buy more shares.  

    The other difference is that rather than increase the number of shares the shareholder owns while the total outstanding share count remains unchanged, in this case the shareholder’s number of owned shares remains the same while the total number of outstanding shares (the denominator) decreases.  Folks aren’t good at math, so let me just tell you, the effect is the same as soon as you stop thinking in absolute number of shares and start thinking in terms of your personal ownership percentage of a business and its future profits.  

    As a long term investor, and this is who share buybacks are designed to benefit, you want your percentage ownership of the business and its future profits to increase.  That’s what you want.  You shouldn’t care whether that’s by your own personal dividend re-investment actions or by management’s actions to buy back shares.  Except there are potentially two advantages to having the company act to increase your percentage ownership over your own ability to do so.

    First, as mentioned above, the tax issue.  You’ll avoid the immediate tax hit, leaving more money to increase your ownership percentage, and over time that extra juice can have a compounding affect in your favor.  As Buffet has stated, every dollar a young man saves and invests can return $20 over the course of his life.  Same principal here on deferring taxes.

    Second, company management knows better than you or I the future prospects of the business (which informs whether to retire shares) and also the likelihood the business is undervalued at any given time (which informs when to retire shares).  

    So share repurchases do exactly what educated and insightful long-term investors would want; to increase their percentage ownership in what they deem a great business at attractive prices while deferring tax liability.  

    Go back and read that a second time.

    Having heard these discussions here for years my view is that those who argue against retiring shares are simply uninformed or unable to see the practice for what it is; a tax favorable and well-timed investment by a business on behalf of its long-term owners.

    Share repurchases also benefit potential shareholders - those considering making an investment in a business.  By removing unproductive cash from the balance sheet and using it to reduce the share count, a business increases the percentage of each dollar invested representing the operating business.  And at the same time increases the ownership percentage represented by each remaining outstanding share.  As a potential investor you want your invested dollars [capital] to purchase an operating business that produces outsized returns, not static and unproductive cash.  

    There was a time a few years ago, back when Icahn was carping, that each dollar invested in Apple shares represented only 75 cents invested in the operating business and 25 cents invested to buy a bit of Apple’s cash hoard.  Most casual investors don’t think about that.  But what if you said to your broker, “please invest $100,000 from my account in this company I feel is a good business” and your broker replied, “sure, but I’m going to invest only $75,000 in the company’s shares and let the other $25,000 sit and do nothing for you.”  You’d question his action, and yet that’s exactly the decision that all of us investors faced, and made, when we bought Apple shares back in those days.  Get unproductive cash off the balance sheet, and put it to good use. 

    Can you hear me now?!!! 

    Yes.  Thank you for the time you spent in composing this excellent defense and thanks to Tim for managing my investment in Apple and listening to Mr. WB.

    If a company is fundamentally healthy, buybacks make sense.  Apple can’t help that Wall Street has this schism in how they value a dollar from services compared to products.  Those of us that follow Apple know the stickyness of the ecosystem and the loyalty of the fan base makes it more like a service but the analysts don’t see this.

    Which is good for me personally and has allowed me to make much money off my long term Apple stock holdings.
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