7 ms·

This isn't a huge bet in BH's world, barely cracking their top 20 holdings list, and it barely registers a blip for Apple, but it's culturally interesting to se

by whafro 10y ago

This isn't a huge bet in BH's world, barely cracking their top 20 holdings list, and it barely registers a blip for Apple, but it's culturally interesting to see Buffet make another no-tech exception for Apple, and it will be interesting to see how much that confidence transfers to the street. Buffett and Berkshire do tend to love companies that generate cash, and Apple certainly does that. They don't tend to chase massive growth, but rather steady climbs backed by real profits. It seems like a pretty reasonable fit.

nstj 10y ago
Does the Buffett "no tech" rule hold for Tedd and Todd, his investment managers?
- zrail 10y ago
  It does not. And it's not a "no tech" rule, it's a guiding principle of not investing in what you don't understand. There's generally something smart to do somewhere in the market that you understand, so why waste time and energy on something you don't? Throw it on the "too hard" pile and move on.
  - deleted 10y ago
    [deleted]
  - nstj 10y ago
    Follow up to your edit - and I'm totally familiar with the "Circle of Competence" philosophy, but given Buffett has stated he won't invest in things which he doesn't understand, and he's said he doesn't understand tech, then it's safe to say that he has a "no tech" rule. I've always been unsure of how to interpret the circle of competence thing, as people always develop new skills, so personally I look at it as "only invest in things with which you are most familiar".
    - saganus 10y ago
      Maybe it's not about not understanding tech per se, but about not understanding the company. If they feel like they understand how Apple works by now, that would make it qualify as not not-understanding, and thus it would not break the "rule". Apple is a tech company but in the eyes of Berkshire maybe they are predictable enough regardless of what they produce (i.e. in terms of their cash flow, product strategy, etc).
    - MaysonL 10y ago
      Maybe it's about whether or not Apple is still a tech company?
    - sumedh 10y ago
      > unsure of how to interpret the circle of competence thing Can you figure out what apple would be doing 10 years from now. If no then its out of your circle of competence. Do you know what Coca Cola would be doing 10 years from now, if yes then it is in your circle of competence.
      - jalopy 10y ago
        Very good summary of circle of competence. Obviously a bit more complicated than that in practice, but this is probably 80% of it.
      - nstj 10y ago
        Yes. What I'm saying is that conceptually I understand Buffett's implementation of the circle of competence, it's just that his circle seems immutable, and I believe for many people they develop insights into new areas/categories of investing, while he seems to have focused on a specific area for his entire lifetime.
- tosseraccount 10y ago
  Many financial analysts categorize Apple as "Consumer Goods" rather than "Technology". Example: http://finviz.com/map.ashx?t=sec http://finviz.com/map.ashx?t=sec
  - SmellTheGlove 10y ago
    And there you've identified the nuance that makes Apple successful where other tech companies have failed. They may be technology driven, but they indeed produce consumer goods. Apple wants to be in every household. Look at their product lines vs. some of the other software/hardware integrated companies trying to push consumer products. Put on your average idiot hat (mine is stuck to my head) and it becomes plainly obvious that Apple makes products for you and markets them in ways that you can understand.
bradleyjg 10y ago
Apple's PE looks more like one of the old line blue chips that are Berkshire's bread and butter than it does like a high flying tech stock. Right now it has a PE of around 10, Alphabet née Google is around 30, Microsoft 40, and Amazon 288. Even Intel is around 13.
- mattmaroon 10y ago
  Apple was never priced like a growth stock, even when it was rapidly growing. Now that it's flatlined it's as if people expect it to shrink. Even if recent growth trends aren't good, they aren't terrible, and that company spits off so much free cash flow.
  - ethbro 10y ago
    I'd be scared about if I were making BRK-sized bets as to what percentage APPL's cash flow is correlated with "cool" or "visionary". Apple's great at reaping rewards for 5-10 years when they crack a new market. They're less great at winning over the longer-term in mature market categories. (That's probably the bigger problem with industrial design-based brands though -- they're far more susceptible to copycatting over a long enough period. All the perils of fashion without the agility to change things as quickly)
    - zepto 10y ago
      What mature market categories have they not done well in, and how do you explain their continued success in the PC market?
      - valarauca1 10y ago
        While they've been profitable in the PC space (laptops/desktops) to call them successful is a bit of stretch. They maintain =<10% of that market category which is hardly continuing success and more like continuing to survive. Edit 1: Downvoters you realize the Mac (Laptop/Desktop) Division is 9.4% of Net Revenue? Source: http://files.shareholder.com/downloads/AAPL/2074014299x0x888270/02193489-739E-4765-B66F-DADA4995F45B/Q2_16_Form_10-Q_As-filed_.PDF http://files.shareholder.com/downloads/AAPL/2074014299x0x888...
SmellTheGlove 10y ago
This is well-stated. I worked for a Berkshire subsidiary for a good chunk of my career, and can tell you the Berkshire values really are what drive the investment. It's not so much about fundamentals, although they do need to be very sound or on the value side, as much as focused, lean management with a clear plan. In this case, I'm thinking Berkshire thinks Apple's share price represents a clear value at the moment (I agree, not that it matters what I think), and there's probably a lot of confidence in the management team going forward. Berkshire doesn't try to catch a falling knife, so they must think otherwise.
- spacecowboy_lon 10y ago
  Depends if its like BH foray into uk supermarkets which dint end well.
  - SmellTheGlove 10y ago
    Not every bet pays off. That's why there is risk in investment. It doesn't mean Berkshire didn't perceive value or sound management, it just means that they were wrong. They're good because they're right more often than the other guys doing the same thing, but they won't hit on every bet.
    - spacecowboy_lon 10y ago
      Yes but the issues with the UK supermarkets where well known at the time.
- ambicapter 10y ago
  What's Apple's clear management plan?
  - SmellTheGlove 10y ago
    Couldn't tell you. I don't follow them that closely. But I bet Berkshire does - they tend to do their homework before investing.
coldtea 10y ago
>This isn't a huge bet in BH's world, barely cracking their top 20 holdings list Top 20 holdings still sounds like a substantial bet...
- jonknee 10y ago
  Not for Berkshire. They hold onto shares for a long time and have less than 50 companies (the ones they really like just get acquired). The new AAPL stake is .83% of the portfolio.
  - cloudwalking 10y ago
    If they only make 50 bets, isn't each one substantial by some definition? It's certainly not a scattershot approach.
    - jonknee 10y ago
      It depends on the size of the bet, .83% of the portfolio isn't substantial in any way (if AAPL went to 0 tomorrow it would barely budge Berkshire's portfolio). In comparison their Wells Fargo stake is 23x the size of Apple's. http://whalewisdom.com/filer/berkshire-hathaway-inc#/tabholdings_tab_link http://whalewisdom.com/filer/berkshire-hathaway-inc#/tabhold...
secfirstmd 10y ago
Also, BH probably does understand the car industry. And that's Apples next target...
- bhouston 10y ago
  It is totally that. :) They are betting on Apple destroying the existing car makers.
  - Fricken 10y ago
    I think Apple is very well positioned to take a big bite out of the transportation pie, by all indicators they are strategic, committed, and have zero excess baggage. But I also consider it to be a very long play, I wouldn't expect returns from their TAAS (transportation as a service) venture in less than a decade. Is BH thinking that far ahead? I don't know.
- serge2k 10y ago
  After the TV right?
jalopy 10y ago
But it is a pretty large bet for Todd and/or Ted, who each manage ~$8-10b. In that light, this is a pretty significant statement about one (or both) of their judgements of Apple's value relative to quoted market price.
- aczerepinski 10y ago
  Good post. This is a bet by Todd or Ted and if you want to piggyback, should be viewed through the lens of how big a bet it is relative to their portfolios. The two of them have generated impressive returns thus far, and are high on my list of investors worth following.

by whafro 10y ago

nstj 10y ago

Does the Buffett "no tech" rule hold for Tedd and Todd, his investment managers?

zrail 10y ago
It does not. And it's not a "no tech" rule, it's a guiding principle of not investing in what you don't understand. There's generally something smart to do somewhere in the market that you understand, so why waste time and energy on something you don't? Throw it on the "too hard" pile and move on.
- deleted 10y ago
  [deleted]
- nstj 10y ago
  Follow up to your edit - and I'm totally familiar with the "Circle of Competence" philosophy, but given Buffett has stated he won't invest in things which he doesn't understand, and he's said he doesn't understand tech, then it's safe to say that he has a "no tech" rule. I've always been unsure of how to interpret the circle of competence thing, as people always develop new skills, so personally I look at it as "only invest in things with which you are most familiar".
  - saganus 10y ago
    Maybe it's not about not understanding tech per se, but about not understanding the company. If they feel like they understand how Apple works by now, that would make it qualify as not not-understanding, and thus it would not break the "rule". Apple is a tech company but in the eyes of Berkshire maybe they are predictable enough regardless of what they produce (i.e. in terms of their cash flow, product strategy, etc).
  - MaysonL 10y ago
    Maybe it's about whether or not Apple is still a tech company?
  - sumedh 10y ago
    > unsure of how to interpret the circle of competence thing Can you figure out what apple would be doing 10 years from now. If no then its out of your circle of competence. Do you know what Coca Cola would be doing 10 years from now, if yes then it is in your circle of competence.
    - jalopy 10y ago
      Very good summary of circle of competence. Obviously a bit more complicated than that in practice, but this is probably 80% of it.
    - nstj 10y ago
      Yes. What I'm saying is that conceptually I understand Buffett's implementation of the circle of competence, it's just that his circle seems immutable, and I believe for many people they develop insights into new areas/categories of investing, while he seems to have focused on a specific area for his entire lifetime.
tosseraccount 10y ago
Many financial analysts categorize Apple as "Consumer Goods" rather than "Technology". Example: http://finviz.com/map.ashx?t=sec http://finviz.com/map.ashx?t=sec
- SmellTheGlove 10y ago
  And there you've identified the nuance that makes Apple successful where other tech companies have failed. They may be technology driven, but they indeed produce consumer goods. Apple wants to be in every household. Look at their product lines vs. some of the other software/hardware integrated companies trying to push consumer products. Put on your average idiot hat (mine is stuck to my head) and it becomes plainly obvious that Apple makes products for you and markets them in ways that you can understand.

bradleyjg 10y ago

Apple's PE looks more like one of the old line blue chips that are Berkshire's bread and butter than it does like a high flying tech stock. Right now it has a PE of around 10, Alphabet née Google is around 30, Microsoft 40, and Amazon 288. Even Intel is around 13.

mattmaroon 10y ago
Apple was never priced like a growth stock, even when it was rapidly growing. Now that it's flatlined it's as if people expect it to shrink. Even if recent growth trends aren't good, they aren't terrible, and that company spits off so much free cash flow.
- ethbro 10y ago
  I'd be scared about if I were making BRK-sized bets as to what percentage APPL's cash flow is correlated with "cool" or "visionary". Apple's great at reaping rewards for 5-10 years when they crack a new market. They're less great at winning over the longer-term in mature market categories. (That's probably the bigger problem with industrial design-based brands though -- they're far more susceptible to copycatting over a long enough period. All the perils of fashion without the agility to change things as quickly)
  - zepto 10y ago
    What mature market categories have they not done well in, and how do you explain their continued success in the PC market?
    - valarauca1 10y ago
      While they've been profitable in the PC space (laptops/desktops) to call them successful is a bit of stretch. They maintain =<10% of that market category which is hardly continuing success and more like continuing to survive. Edit 1: Downvoters you realize the Mac (Laptop/Desktop) Division is 9.4% of Net Revenue? Source: http://files.shareholder.com/downloads/AAPL/2074014299x0x888270/02193489-739E-4765-B66F-DADA4995F45B/Q2_16_Form_10-Q_As-filed_.PDF http://files.shareholder.com/downloads/AAPL/2074014299x0x888...

SmellTheGlove 10y ago

This is well-stated. I worked for a Berkshire subsidiary for a good chunk of my career, and can tell you the Berkshire values really are what drive the investment. It's not so much about fundamentals, although they do need to be very sound or on the value side, as much as focused, lean management with a clear plan. In this case, I'm thinking Berkshire thinks Apple's share price represents a clear value at the moment (I agree, not that it matters what I think), and there's probably a lot of confidence in the management team going forward. Berkshire doesn't try to catch a falling knife, so they must think otherwise.

spacecowboy_lon 10y ago
Depends if its like BH foray into uk supermarkets which dint end well.
- SmellTheGlove 10y ago
  Not every bet pays off. That's why there is risk in investment. It doesn't mean Berkshire didn't perceive value or sound management, it just means that they were wrong. They're good because they're right more often than the other guys doing the same thing, but they won't hit on every bet.
  - spacecowboy_lon 10y ago
    Yes but the issues with the UK supermarkets where well known at the time.
ambicapter 10y ago
What's Apple's clear management plan?
- SmellTheGlove 10y ago
  Couldn't tell you. I don't follow them that closely. But I bet Berkshire does - they tend to do their homework before investing.

coldtea 10y ago

>This isn't a huge bet in BH's world, barely cracking their top 20 holdings list Top 20 holdings still sounds like a substantial bet...

jonknee 10y ago
Not for Berkshire. They hold onto shares for a long time and have less than 50 companies (the ones they really like just get acquired). The new AAPL stake is .83% of the portfolio.
- cloudwalking 10y ago
  If they only make 50 bets, isn't each one substantial by some definition? It's certainly not a scattershot approach.
  - jonknee 10y ago
    It depends on the size of the bet, .83% of the portfolio isn't substantial in any way (if AAPL went to 0 tomorrow it would barely budge Berkshire's portfolio). In comparison their Wells Fargo stake is 23x the size of Apple's. http://whalewisdom.com/filer/berkshire-hathaway-inc#/tabholdings_tab_link http://whalewisdom.com/filer/berkshire-hathaway-inc#/tabhold...

secfirstmd 10y ago

Also, BH probably does understand the car industry. And that's Apples next target...

bhouston 10y ago
It is totally that. :) They are betting on Apple destroying the existing car makers.
- Fricken 10y ago
  I think Apple is very well positioned to take a big bite out of the transportation pie, by all indicators they are strategic, committed, and have zero excess baggage. But I also consider it to be a very long play, I wouldn't expect returns from their TAAS (transportation as a service) venture in less than a decade. Is BH thinking that far ahead? I don't know.
serge2k 10y ago
After the TV right?

jalopy 10y ago

But it is a pretty large bet for Todd and/or Ted, who each manage ~$8-10b. In that light, this is a pretty significant statement about one (or both) of their judgements of Apple's value relative to quoted market price.

aczerepinski 10y ago
Good post. This is a bet by Todd or Ted and if you want to piggyback, should be viewed through the lens of how big a bet it is relative to their portfolios. The two of them have generated impressive returns thus far, and are high on my list of investors worth following.