A stunning fall from grace
After Apple became the first company in U.S. history to reach a $1 trillion market cap, things have taken a turn for the worse. The company had largely avoided the effects of the growing trade war with China and launched new models of its flagship iPhone in early September, driving its stock to all-time highs.
Apple stock began its decline in early October along with the rest of the tech sector, but the bottom seemed to fall out after Apple released its fiscal fourth-quarter results in early November. While sales of the recently introduced iPhones weren’t as lofty as some had expected, it was the company’s controversial decision to stop providing investors with unit sales data that made headlines — and started an ongoing slump in the stock price that has continued until today. This leaves Apple stock selling at a 29% discount to its recent highs.
Recent regulatory filings show that Buffett had amassed nearly 252 million shares of Apple stock as of Oct. 31 — a massive 5% of the company’s outstanding shares. The recent downturn, however, has caused the value of his investment to drop by nearly $17 billion from its recent highs.
Investors who focus solely on the stock price, however, are likely missing the big picture. It’s helpful, therefore, to go back and look at some of Buffett’s reasons for investing in Apple in the first place.
In a prophetic move, Buffet had previously addressed the issue of unit sales and investors’ tendency to focus on quarterly iPhone numbers in an interview earlier this year:
Nobody buys a farm based on whether they think it’s going to rain next year or not. They buy it because they think it’s a good investment over 10 or 20 years … The idea of spending loads of time trying to guess how many iPhone X … are going to be sold in a given three month period, to me, it totally misses the point.
On another occasion, Buffett said, “I do not focus on the sales in the next quarter or the next year,” he said. “I focus on the … hundreds, hundreds, hundreds [of] millions of people who practically live their lives by it [the iPhone].”
Even though Berkshire owns 5% of Apple shares, if it were up to Buffett, he wouldn’t stop there, saying “I’d love to own 100% of it.” There are a number of reasons that Buffett sees the company as a compelling opportunity. He specifically called out Apple’s leadership, saying, “We like very much the management and the way they think.” He also cited “the economics of their activities” as a selling point.
One of the biggest attractions is Apple’s customer loyalty, which Buffett said is “huge.” “It’s a very, very, very valuable product to people that build their lives around it.” He even said that it goes beyond loyalty:
Apple has an extraordinary consumer franchise. I see how strong that ecosystem is, to an extraordinary degree. … You are very, very, very locked in, at least psychologically and mentally, to the product you are using. [IPhone] is a very sticky product.”