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- Warren Buffett counts Apple as one of his best investments to date.
- “The Big Short” investor Michael Burry identified Apple as “Buffett stock” in 1999.
- Buffett’s Berkshire Hathaway didn’t buy a stake in the iPhone maker until 2016.
- See more stories on the Insider business page.
Warren Buffett praised Apple, one of its most lucrative bets ever and easily the biggest holdings in Berkshire Hathaway’s stock portfolio, as a “gem” in his latest annual letter. Still, the investor only realized the value of the iPhone maker and bought a stake in 2016 – nearly two decades after Michael Burry described it as “Buffett stock.”
Buffett seeks to invest in undervalued companies with strong consumer brands, strong finances and high quality management. Burry, whose billion-dollar bet against the US housing bubble was recounted in the book and movie “The Big Short,” admitted that Apple was boasting all of these attributes in the late 1990s.
Apple ticked the boxes
Burry, who now heads Scion Asset Management, studied Buffett closely as a young investor and incorporated the Berkshire chief’s teachings into his own research. He shared his stock picks and debated their merits on the Silicon Investor forum, where he has posted more than 3,000 times in the dot-com era.
One of Burry’s favorite stocks was Apple, as it had many of the characteristics that Buffett looked for in a business.
“Apple, boy, everyone lives in the past on this one,” he said in April 1999, when Apple’s market cap was less than $ 6 billion, compared to over $ 2 trillion. dollars today. “The management is now excellent. The product is now very good, but more importantly the marketing is now excellent.”
“No one credits Apple, but to me it has the marks of valuable stock and potential Buffett-type stock,” he said in another post this month.
“A real cash machine lately, trading at an average single-digit cash flow multiple, with a nice recovery in operational efficiency,” he continued. “A great brand with exclusive perks and a bit of wit. Subtract the cash and it recently traded at around 10x earnings.”
The investor doubled his position in a May 1999 position. “Apple is now a Buffett stock thanks to both its management and its brand,” he said. Apple co-founder Steve Jobs returned as CEO in 1997, hired future CEO Tim Cook in 1998, and also launched the beloved iMac that year.
Burry called the company “incredibly undervalued” given its cash generation, market opportunities, strong balance sheet, and limited drawbacks in another article in May 1999.
Additionally, he pointed to Apple’s pricing power and mainstream brand as proof that this was Buffett-worthy stock in a July 1999 article.
“Buffett’s point has always been that in the long run it’s the consumer franchises that last,” Burry said.
Burry spotted Apple before Buffett
Buffett likes mainstream brands because they allow their owners to raise prices and serve as “ditches” that keep competitors at bay. Some of Berkshire Hathaway chief’s biggest investments are known names like American Express, Coca-Cola, and Kraft Heinz.
The investor described Apple as a consumer products company that uses technology, instead of a tech company, to explain why it invested despite its historical aversion to tech stocks. He hailed it as “probably the best company” he knows in the same interview.
While Burry has beaten Buffett at Apple by over 15 years, he hasn’t fully capitalized on his early ideas. The aspiring investor sold his shares after they jumped between 50% and 75% in a matter of months, he revealed in a July 1999 article.
Burry reinvested at some point over the next 15 years. The largest position in its Scion fund in the first quarter of 2016 was Apple – it held 75,000 shares worth $ 8 million, according to SEC filings.
Still, Burry sold the following quarter. Had he held on, the value of Scion’s stake would have more than quadrupled to $ 36 million today.
Either way, Burry deserves kudos for finding a gem. If Buffett had bought out Apple when Burry realized it was his kind of business, the Berkshire chief would have made far more than his current $ 80 billion gain on the investment.
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