If I’m Warren Buffett, I’m saying to myself, “bring it on,” because even though the iPhone maker is facing its first bit of downward pressure in 2020, the long-term consensus remains excellent for Tim Cook and Apple.
Besides, we know Warren Buffett loves a good deal, so if it does indeed drop into double digits — as I write this, it’s trading around $115 — expect the Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) quarterly filings to show further additions to its Apple holdings.
Buffett’s History with AAPL Stock
A MarketWatch article caught my attention while researching Buffett and his Apple affiliation. By Lawrence Cunningham, the man behind several books about Buffett, including The Essays of Warren Buffett, which was originally published in 1999, and is considered a must-read investment book.
Cunningham has forgotten more about investing than most people have learned.
“Research conducted by the Quality Shareholders Initiative at George Washington University shows that companies with the highest-priced shares tend to enjoy the greatest proportion of QSs [Quality Shareholders],” Cunningham wrote on Oct. 7.
“For instance, of the 100 highest-priced shares in the S&P 500, more than one-third are in the highest decile for QS density and more than half are in the top quarter.”
I downloaded Cunningham’s forthcoming paper, The Case for Empowering Quality Shareholders, and it implies that Warren Buffett is the poster child for this initiative.
“In the wider literature, the exemplar of quality shareholders are Warren Buffett and his company, Berkshire Hathaway. With a pedigree dating back to John Maynard Keynes and a following today commanding several trillions of dollars in invested assets, this cohort is vital,” Cunningham writes.
But nowhere does the George Washington University professor explain why the institutional investors he names in the MarketWatch article are considered quality shareholders in the first place. He does say in his paper that Buffett considers quality shareholders to be those that “load up and stick around.”
I’m left scratching my head, wondering what the Apple stock split has to do with quality shareholders. After all, Berkshire owned more than one billion shares of Apple stock at the end of June, the holding company’s largest equity position by a country mile.
Apple split four for one. Therefore, assuming Buffett sold no shares in the third quarter, Berkshire now owns more than four billion shares. The market value doesn’t change, just the number of shares outstanding.
It’s hard to imagine Buffett was sitting in his office on Aug. 27, the day before Apple split, thinking how much better a company Apple was at $500, than the share price the day after the split.
Fundamentally, I understand the theory behind a high stock price. Still, in an age where any retail investor can own fractional shares in a company, it really shouldn’t matter whether you own four shares at $125, one share at $500, or one-quarter of a share worth $125.
So, unless Berkshire starts selling its Apple shares in rapid succession, Buffett’s endorsement of Apple continues to indicate that pre- and post-split, the quality of the company’s shareholders isn’t about to change because a few more people can afford to buy a board lot.
I respect Cunningham, but I think he’s making a mountain out of a molehill in this instance.
The Bottom Line
Berkshire’s next 13-F filing doesn’t come out until the middle of November. My guess is we won’t see much of a change either way in the number of Apple shares held by Berkshire.
That said, from the end of August through the end of September, AAPL stock lost 10% of its value, making its shares that much more attractive to someone like Buffett, who’s always happy to get a deal on a well-run company.
Apple closed out September trading around $115. It hasn’t moved much in the first part of October. Should it lose another 10% to 20% of its value over the next 2.5 months, I could see Buffett adding more despite the fact it accounts for 48% of Berkshire’s equity portfolio.
In recent years, Apple hasn’t gone on sale very often. If it does, look for Buffett to crash the party.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.