- Warren Buffett considers Apple one of his best investments ever.
- Investor Michael Burry, ‘The Big Short’, identified Apple as a ‘Buffett share’ in 1999.
- Buffett’s Berkshire Hathaway only bought a stake in the iPhone maker in 2016.
- See more stories on Insider’s business page.
Warren Buffett praised Apple, one of its most lucrative bets ever, and easily the largest shareholder in Berkshire Hathaway’s equity portfolio, in its latest annual letter as a ‘gem’. Yet the investor first realized the value of the iPhone maker and bought a stake in 2016 – almost two decades after Michael Burry described it as a “Buffett stock”.
Buffett famously wants to invest in undervalued companies with strong consumer brands, robust finances and high-quality management. Burry, whose billion-dollar bet against the American housing bubble was described in the book and film “The Big Short,” acknowledged that Apple boasted all of these features in the late 1990s.
Apple marks the boxes
Burry, who now runs Scion Asset Management, carefully studied Buffett as a young investor and incorporated the teachings of the Berkshire chief into his own research. He shares his shares and discusses their merits on the Silicon Investor forum, where he posted more than 3,000 times during the dot-com era.
One of Burry’s favorite stocks was Apple, because it showed many of the qualities Buffett is looking for in a business.
“Apple, boy, everyone lives on this one in the past,” he posted in April 1999, when Apple’s market capitalization was below $ 6 billion, compared to more than $ 2 billion today. “The management is great now. The product is very good now, but more importantly, the marketing is great now.”
“No one gives credit to Apple, but to me it has the indications of a value stock and potential Buffett-like stocks,” he said in another post this month.
“A true cash machine of late, trading at a mid-single-digit multiple of cash flow, with a major recovery in terms of operating efficiency,” he added. “A good brand with its own benefits and mindshare. Subtract the cash and it recently traded at ten times the earnings.”
The investor doubled his position in a May 1999 position. “Apple is now a Buffett share, just as much thanks to its management as its brand,” he said. Apple co-founder Steve Jobs returned as CEO in 1997, appointed future CEO Tim Cook in 1998, and introduced the beloved iMac that year as well.
Burry trumpeted the company as ‘incredibly undervalued’ because of its cash generation, market opportunity, solid balance sheet and the limited downside in another position in May 1999.
In addition, he pointed to Apple’s pricing and consumer brand as proof that it was a Buffett-worthy stock in a July 1999 post.
“Buffett’s point has always been that in the long run it’s the consumer rights that hold,” Burry said.
Burry spotted Apple ahead of Buffett
Buffett likes consumer brands as they allow their owners to raise prices and serve as ‘diggers’ who keep competitors at a distance. Some of the biggest investments of the Berkshire Hathaway chief are household names such as American Express, Coca-Cola and Kraft Heinz.
The investor described Apple as a consumer products business that uses technology, rather than a technology business, to explain why he invested despite his historical aversion to technology stocks. He praised it as ‘probably the best business’ he knows in the same interview.
While Burry Buffett beat Apple for more than fifteen years, he did not take full advantage of his first insight. The budding investor sold his shares after jumping between 50% and 75% within a few months, he announced in a July 1999 post.
Burry reinvested at some point over the next 15 years. Its Scion fund’s largest position in the first quarter of 2016 was Apple – it owns 75,000 shares worth $ 8 million, SEC documentation shows.
Still, Burry sold the next quarter. If he had, Scion’s stake would have more than quadrupled to $ 36 million today.
Burry deserves regardless, because he dug up a gem. If Buffett bought back Apple when Burry realized it was his kind of company, the Berkshire CEO would have earned far more than his current $ 80 billion profit on the investment.