Did Buffett Change or Did Apple Change?

by | Feb 17, 2017 | General

Neither one

Warren Buffett is famous for many reasons, but one stands out as we learn of his massive buying of Apple stock late last year . He’s always said he would avoid technology companies since the industry is so competitive. He now owns over $7 billion of Apple stock making it the 8th largest holding for Berkshire Hathaway—so what gives?

Has Buffett ignored one of his cardinal rules? We don’t think so—we don’t think he sees Apple as a technology company. Here’s a short list of Buffett preferences that support his purchase of Apple:

  • He loves powerful brands: Apple’s brand is so recognizable, their silhouette logo is enough to identify their stores. The Nike “Swoosh” has similar power, but there aren’t many others.
  • He loves consumer products: Even though the iPhone is packed with technology, it is packaged and sold as a consumer product. The technology analysts on Wall Street often miss this point. 
  • He loves predictable growth companies: The Apple customer base is extremely sticky. The huge growth spurts of the past won’t be repeated, but the latest earnings reports suggest that services revenue can grow steadily over time.
  • He wants a business with a large addressable market: Buffett apparently believes that Apple’s world-wide market share of smartphones at 18% could grow from here.
  • He wants rational capital allocation: Apple’s dividend and stock buy-back policies create a margin of safety that Buffett always finds attractive.

As we enter our tenth year of Apple ownership, we continue to believe in the company’s future. However, we must admit that having Warren Buffett as a fellow shareholder reinforces our optimism.

Best regards,

Daniel A. Ogden

 

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