If you didn't watch Warren Buffett's interview on CNBC last week, it would be worth your while to look at some of the highlights online. The legendary investor gave his views on a wide range of topics, from artificial intelligence to the banking turmoil to inflation.
One of the most interesting things he said, in my view, was on the topic of Apple (AAPL -1.22%). Buffett told CNBC's Becky Quick:
...if you're an Apple user and somebody offers you $10,000 but the only proviso is you'll never be able -- to they'll take away your iPhone and you'll never be able to buy another, you're not gonna take it. If they tell you if you buy another Ford Motor car, they'll give you $10,000 not to do that, you'll take the $10,000. You'll buy a Chevy instead.
You may or may not agree with Buffett about turning down a lot of money to keep your iPhone. However, his statement made me wonder: Which stocks would pass Buffett's $10,000 test?
Image source: The Motley Fool.
An easy pick
Let me first say that I agree with Buffett that many people would forego $10,000 to be able to keep their iPhones. Apple truly has a large and loyal customer base. I think there's at least one other publicly traded company that's an easy pick for also passing the $10,000 test.
Vertex Pharmaceuticals (VRTX 0.20%) sells the only approved therapies that target the genetic defect that causes cystic fibrosis (CF). Would CF patients choose to give up what's literally a life-changing treatment for $10,000? I seriously doubt it.
Looking ahead, Vertex could also pass this Buffett test if it wins regulatory approval for exa-cel. The company recently completed its U.S. Food and Drug Administration filing for the gene-editing therapy in treating (for many patients, effectively curing) sickle cell disease and transfusion-dependent beta-thalassemia. I can't imagine that anyone would take $10,000 to pass up the opportunity to live without the negative impacts of either rare blood disorder.
We could almost certainly put any pharmaceutical or biotech company that markets the only drugs that treat a given condition in the club as well.
Tougher choices
What if we look beyond drugmakers with life-saving and life-changing products? It gets tougher to identify stocks that would pass Buffett's $10,000 test.
One possible alternative might be a stock such as Altria Group (MO 1.91%), which markets Marlboro cigarettes in the U.S. While some smokers would switch to another brand for enough money (or, more wisely, give up cigarettes altogether), I suspect that many would refuse to change even for a significant amount of money. It's not surprising that Altria has been one of the best-performing stocks ever.
Maybe some die-hard Coca-Cola or Pepsi drinkers wouldn't switch to another beverage for $10,000. The same could be true for fans of other beverage makers such as Celcius.
Perhaps the best approach, though, is to identify the stocks of companies with high-end products that enjoy tremendous customer loyalty. Tesla (TSLA -1.92%) could be a good candidate in this group. A survey conducted last year by S&P Global Mobility found that Tesla had the highest brand loyalty in the luxury car market. Still, though, only 63% of Tesla owners said they'd buy another Tesla vehicle again.
A more important test
I'd like to propose what I believe is a more important test for investors. It's along the same lines as Buffett's hypothetical scenario about Apple users turning down $10,000 to give up their iPhones. However, this test will require a little more thought.
Suppose you could own $100,000 worth of any stock that's in your portfolio right now. Now imagine that someone offered to pay you $10,000 to sell that stock at the current share price. The caveat, though, is that you wouldn't be able to buy the stock back for another year. Which stocks would you refuse to sell?
Your answer to this question should help you determine your highest-conviction stocks. You might want to consider adding to your positions in these stocks. As for the ones that didn't make the cut, it doesn't necessarily mean that you should sell them right away.
My hunch is that Buffett would include Apple (and, of course, Berkshire Hathaway) in his response to the Keith Speights $10,000 test. Both seem like pretty good answers to me.
