In this Industry Focus: Financials clip, Michael Douglass and Matt Frankel parse Buffett's reasoning for Berkshire's massive Apple investment.
A full transcript follows the video.
This video was recorded on May 7, 2018.
Michael Douglass: Alright, Matt, let's not bury the lede, because these are the things people really wanted to talk to anyways, right? Apple. Berkshire just bought 75 million more shares, and Buffett was quite bullish on the stock at the meeting.
Matt Frankel: Yeah. This makes Berkshire's stake in Apple about 5% of the company, which doesn't sound like much, but this is $45 billion worth of stock we're talking about. So, this is not only Berkshire's biggest stock investment now, this is one of the biggest parts of Berkshire in general. It's about 10% of the company's market cap. Buffett loves Apple for several reasons. It's really morphed into a Buffett stock, I guess I would say.
Frankel: It's not a capital-intensive business, which Buffett loves. It has a very, very loyal following of customers. As all listeners probably know, people either love Apple or don't love Apple, and the people who love Apple will never be convinced otherwise.
Douglass: [laughs] Yeah. My wife is a big Apple lover, so, yes.
Frankel: We're a split household, too. I'm using a Dell right now, and my wife is on her iPad. [laughs] So, we're a split household, also, and she's not going to give up her iPad for a tablet any time soon.
Frankel: So, it's a very sticky product, is how Buffett phrases that. He also loves Apple's management. It's really hard to overemphasize how much value Buffett places on good management, especially shareholder-friendly management that goes out of their way to return as much capital as possible to its shareholders -- in Apple's case, through buybacks. He loves Apple's massive buyback programs, especially in this environment where no one can find attractive companies to buy. He feels that this is by far Apple's best use of its cash. He said this morning that he owns 5% of Apple, and he knows that within ten years, he's going to own 6% of Apple, even if he doesn't put another dime in. Buffett and Munger both actually said today that they wish they had bought more, they probably weren't aggressive enough with Apple. So, I actually wouldn't be surprised to see Berkshire buy even more Apple over the next few quarters.
Douglass: Yeah. It was funny, actually, Buffett got on CNBC this morning and basically said, "We'd love to own 100% of the company," and then he walked that back a little bit and said, "Listen, if you're buying shares of a company, it's because you want to own the whole thing." So, let's not have any speculation about Berkshire buying Apple. A, not going to happen. B, they don't have enough money.
Frankel: Yeah. You don't say it that sentence too often, but with Apple, it certainly applies.
Douglass: [laughs] Right, for once. It was interesting, as well, he also said, "There are other stocks we like just as much as Apple, it's just that the companies aren't nearly as big. Berkshire can't buy nearly as much of them." Keep in mind, one of the key things here is, they need scale plays, and Apple is just about as big of a scale play as they get.
It's been a really interesting evolution on his part, I think, because a lot of us do think of Apple as kind of a tech company, and he really has pushed, I would say, really starting at last year's annual meeting, for people to think of Apple increasingly as a consumer goods company. So, Dylan, Vince, I don't know if you all are listening, but consider that. Maybe Vince gets to cover Apple from now on, and Dylan's going to have to limit himself to Spotify, Snap, and a few other tech stocks. I don't know! I'm not in the middle of that fight. I'm just throwing it out there. When Warren Buffett speaks, we all have to listen a little bit.
Matthew Frankel owns shares of Apple and Berkshire Hathaway (B shares). Michael Douglass owns shares of Apple and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.