Did Warren Buffett take a bite of Apple? (Not actual Warren Buffett shown)
Apple (NASDAQ:AAPL) is up on news that Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) just disclosed a new position in AAPL, to the tune of ~9.8 million shares. The market is cheering this on the ground that "Warren Buffett buys Apple."
Naturally, cheering it does seem rational. After all, Warren Buffett has certainly shown himself to be much more often right than wrong. Plus, of course, Apple does seem to be the kind of business Warren Buffett would like (with one minor exception):
- Apple has world-class margins (operating margin near 30%, ROE near 40%).
- For these statistics, Apple is as cheap as they come with a TTM barely above 10x, never mind if we exclude cash.
- Apple's ROE is unlevered, because the company has cash.
- And finally, Apple has a powerful brand as well as a unique operating system, endowing it with the supposed "moat" which can defend Apple's margin/profit castle for a long time to come.
Of course, the minor exception is that Warren Buffett usually doesn't dabble in technology, and as Charlie Munger once said, coincidentally:
The whole world admires the achievements of Apple. On the other hand, you could hardly think of another business that is more un-Berkshire-like than Apple. We really hate trying to invent whole new, novel technologies, one after another. We wouldn't be as good at it as Apple is. So we're not trying to out-Apple Apple.
So Why Do I Question Whether Buffett Bought Apple?
You see, for a while now Berkshire Hathaway has been a changed company. Not all investment decisions over at Berkshire Hathaway are taken by Warren Buffett anymore:
- Back in 2010, Berkshire Hathaway added a new investment manager, Todd Combs, which oversaw $1-$3 billion in investments (Source: 2010 Berkshire Hathaway shareholder letter).
- Then, during 2010, Berkshire Hathaway added another investment manager, Ted Weschler (Source: 2011 Berkshire Hathaway shareholder letter). At this point, each of the two managers was to be entrusted with "a few billion dollars" during 2012.
- Finally, in its 2015 shareholder letter, Berkshire Hathaway disclosed that these two managers were already handling $9 billion - each.
The end result of this is that when you see reports of positions Berkshire Hathaway has taken, these don't necessarily come from the old master himself. Instead, and particularly for positions up to around $1 billion and growing (like Apple), they can come from any of these two managers.
Now, it's a certainty that Warren Buffett trusts both of these gentlemen. It's also very likely that he doesn't meddle with their decisions - the same way he doesn't meddle with the day-to-day running of his operational subsidiaries. So perhaps by believing Warren Buffett is buying AAPL stock, you're still believing in Warren Buffett's judgment - of choosing those who chose AAPL.
But here's the thing. While you were comfortable with Warren Buffett's stock picking, who's to say you'll be comfortable with Todd Combs or Ted Weschler?For instance, consider:
- Were you comfortable when Berkshire Hathaway bought General Motors (NYSE:GM)? That was likely done by one of them.
- Or Suncor (NYSE:SU)? That was also likely.
- Or Viacom (NYSE:VIA) (NASDAQ:VIAB)?
- Or, indeed, would you have plunged into Apple if the headline had been "Todd Combs buys Apple" or "Ted Weschler buys Apple?"
I guess by now you see the problem here. If you are going to follow Warren Buffett blindly into Apple, at least be sure you're actually following Warren Buffett. Of course, if you aren't following anyone and are just coincidentally buying Apple on its own merits today, then you're more likely to do well.
Finally, I should add that this Berkshire Hathaway move was made before the end of Q1 (March 31). So, it was made before we knew how the iPhone was actually doing and how ugly Apple would guide forward. Of course, Warren Buffett makes his decisions based on the far future. Oh, but wait, that might not have been Warren Buffett making the decision. Do the others behave the same way? They likely do - Warren Buffett wouldn't have it any other way. But still, keep this in mind.
It's far from certain that it was actually Warren Buffett deciding to buy AAPL stock. This article explained why, and also shows other instances where the stocks bought by Berkshire Hathaway don't seem of the kind Warren Buffett would buy.
Caveat Emptor thus applies even if you're thinking you're doing as Warren Buffett would have done - and at a cheaper price to boot. Because alas, it might not be Jesus, the old master that you're following this time.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.