Charlie Munger, the billionaire philanthropist and vice chairman of Berkshire Hathaway, revered as the closest confidant of Warren Buffett, passed away at the age of 99 on Tuesday night in California. As the world of business mourns his death, let’s have a look at one of Berkshire Hathaway’s success stories that involve iPhone-maker Apple.
Berkshire Hathaway's venture into Apple has proved to be a monumental success, with its stake soaring to an astonishing $177.6 billion, a remarkable rise from its initial investment of $31 billion.
The conglomerate now possesses 5.85% of Apple's outstanding stock, marking a remarkable journey since its initial foray in Q1 of 2016. Over the course of 19 transactions, Buffett strategically entered and exited Apple positions, buying shares 13 times and selling five times. As per the latest publicly available data, this strategic manoeuvring has yielded an impressive gain of 379%.
Apple stands as Munger and Buffett's most significant investment coup to date. Commanding a colossal market value of nearly $3 trillion, the tech giant known for its consistent dividend payouts and robust stock buyback programs, is poised to contribute a staggering $878.9 million to Berkshire's dividend coffers.
The soaring success of Apple can be attributed to its substantial earnings growth, with predictions indicating a threefold surge in profits to around $6.75 per share by the end of the fiscal year in September 2024, in comparison to the figures from fiscal 2017. Additionally, a twofold increase in its price-to-earnings ratio has bolstered Apple's standing in the market.
Buffett and Munger, foresaw Apple's potential seven years ago, acknowledging it not merely as a technology hardware company but as a powerhouse in consumer services. In a recent CNBC interview, he highlighted the steadfast loyalty of Apple users, emphasising their reluctance to part ways with their devices, even in the face of a lucrative $10,000 offer.
Munger, known for being an old-school value investor, who shies away from expensive growth stocks and prizes predictability, has been surprisingly favourable to Apple. "They try and have a few Apples and Googles or so on, just to keep up, because they know that a significant percentage of all the gains that come to all the common stockholders combined is going to come from a few of these supercompetitors," he said in Acquired podcast. He had lauded Apple for still being a good bet in various interviews.
Buffett expressed admiration for Apple's CEO, Tim Cook, lauding his exceptional management of the company following in the footsteps of Steve Jobs. At Berkshire's annual meeting in May, Buffett attested that Apple outshines any of Berkshire's wholly-owned subsidiaries. Despite his admitted lack of comprehension regarding the intricacies of phones, he emphasised his understanding of consumer behaviour and the extraordinary position Apple holds among consumers.
"Apple has a position with consumers where they’re paying—maybe they pay $1,500, or whatever it may be, for a phone," Buffett stated at the annual meeting. "And these same people pay $35,000 for having a second car. And if they had to give up a second car or give up their iPhone, they give up their second car. I mean, it’s extraordinary."
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