Editor’s note: This article was first published in March 2013. It cites figures from then: Apple at $421 a share, close to $100 billion in cash, and Berkshire class A shares at $150,000. Berkshire became a major Apple shareholder from 2016, contradicting the line that Buffett had never owned Apple shares.
The punishment of Apple’s shares on the stock market continues, to the point that they are already down to $421 a share (their lowest level in 12 months). This is, without a doubt, an excessive and senseless punishment, and Warren Buffett himself has spoken about it.
Remember that Apple is currently the most solvent company on the planet, with little debt and close to $100 billion in cash, money it could use to buy all of its rivals in the phone business.
CNBC asked Warren Buffett what advice he would give Tim Cook, Apple’s current CEO, about raising the dividend, as hedge funds have been demanding, especially David Einhorn, who is probably the person most responsible for the heavy fall in Apple’s share price.
Buffett replied without hesitation that Apple should ignore the hedge funds’ demands and focus on creating value in its business. This is the gist of what he said, in our translation:
I don’t own any Apple shares and never have. I spoke with Steve Jobs a few years ago about what they were doing with the money. The best thing you can do with a business is to run it well, and if you do it well, the stock will do well over time. There have been all sorts of times when people have criticised us and said “do this or do that at Berkshire”.
I ignored them. I want to run the business in a way that creates the most value over the next five or ten years. You can’t run a business trying to make the stock go up every day. Berkshire has fallen 50% on four occasions in its history. When that happens, if you have the money, you can buy more shares of your own company.
You have to keep working at creating value. When Berkshire’s shares fell, I would hear people say: why don’t you do this or that? Usually they ask to be paid bigger dividends, thinking the shares might go up because of it. In reality, if we had done that, they would have gone down.
I think Apple has done a good job of creating value. One of the reasons Apple has so much money is that two thirds of it has not yet been taxed. When Berkshire’s shares fell from $90,000 to $45,000, I asked myself a question: do I have spare money? The answer was yes, so, knowing the potential we had at Berkshire, why not buy something worth more than $90,000 for just $45,000? It’s like buying $1 bills for 80 cents. Berkshire’s shares now trade at around $150,000.
And that is the situation Apple is in right now. So my advice to Tim Cook would be that, instead of giving in to David Einhorn’s blackmail, he could invest part of Apple’s cash in buying back its own shares and keep creating value in the company. That way, the selling will come to an end and the buying will soon follow.
Further reading
Featured image: Archcast, CC BY-SA 3.0, via Wikimedia Commons.
