- Warren Buffett considers Apple to be one of his best investments of all time.
- The Big Short investor Michael Burry identified Apple as a “Buffett stock” in 1999.
- Buffett’s Berkshire Hathaway bought only a stake in the iPhone maker in 2016.
- See more stories on the Insider business page.
Warren Buffett praised Apple, one of its most profitable bets and easily the largest stake in Berkshire Hathaway’s stock portfolio, as a “jewel” in its latest annual letter. However, the investor only 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 is famous for seeking to invest in undervalued companies with strong consumer brands, robust finances and high quality management. Burry, whose billion-dollar bet against the U.S. housing bubble was narrated in the book and movie “The Big Short,” acknowledged that Apple boasted all of these attributes in the late 1990s.
Apple checked the boxes
Burry, who now runs Scion Asset Management, studied Buffett closely as a young investor and incorporated the teachings of the Berkshire chief in his own research. He shared his stock choices and debated his merits at the silicon investor forum, where he posted more than 3,000 times during the dot-com era.
One of Burry’s favorite actions was Apple, as it showed many of the characteristics that Buffett seeks in a business.
“Apple, man, everyone is living in the past with this one,” he posted in April 1999, when Apple’s market capitalization was less than $ 6 billion, compared to more than $ 2 trillion today. “Management is now great. The product is now very good, but even more important, marketing is now great.”
“No one is giving credit to Apple, but for me, it bears the marks of a worthy stock and a potential Buffett-type stock,” he said in another post that month.
“A real cash machine lately, trading at a half digit multiple of cash flow, with a big recovery in terms of operational efficiency,” he continued. “A great brand with proprietary advantages and mental participation. Subtract the money and it was recently traded at about 10 times the profits.”
The investor doubled his position in a May 1999 post. “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 launched the beloved iMac that year as well.
Burry proclaimed the company as “incredibly undervalued” due to its cash generation, market opportunity, solid balance sheet and limited handicap in another publication in May 1999.
In addition, he pointed to Apple’s pricing power and consumer brand as evidence that it was a Buffett-worthy action in a July 1999 post.
“Buffett’s point has always been that, in the long run, it is the consumer franchises that last,” said Burry.
Burry spotted Apple before Buffett
Buffett loves consumer brands, as they allow their owners to raise prices and serve as “moats” that keep competitors away. Some of the biggest investments by the head of Berkshire Hathaway are well-known names like American Express, Coca-Cola and Kraft Heinz.
The investor described Apple as a consumer products company that uses technology, rather than a technology company, to explain why he invested despite his historic aversion to technology stocks. He praised it as “probably the best deal” he knows in the same interview.
Although Burry beat Apple’s Buffett for more than 15 years, he did not fully capitalize on his early insights. The training investor sold his shares after they jumped between 50% and 75% in a matter of months, he revealed in a July 1999 post.
Burry reinvested at some point in the next 15 years. The biggest position of its Scion fund in the first quarter of 2016 was Apple – it had 75,000 shares worth $ 8 million, the SEC filings show.
Even so, Burry sold the following quarter. If he had insured himself, Scion’s stake would have more than quadrupled in value to $ 36 million today.
Regardless, Burry deserves praise for digging up a jewel. If Buffett bought Apple back when Burry realized it was his type of company, the Berkshire boss would have earned much more than his current $ 80 billion gain from the investment.