Warren Buffett may appear to violate several of his own long held investment tenants by taking $1.1 billion stake in Apple. By any count, Apple is not “a simple and understandable business,” nor has “favorable long-term prospect.” However, he did stick to the value principle, “buy the business at a discount to intrinsic value,” by paying a 10-11 forward PE for the tech giant, a level even Carl Icahn, who just exits the stock, admitted “Apple is attractively priced.”
Though, Buffett is not known to be the savior for falling angels.
Remember the most recent Goldman Sachs, IBM, Solomon Brothers, and the most earliest, Berkshire Hathaway, yes, Berkshire Hathaway, an ailing textile mill 52 years ago.
That being said, neither Icahn nor Buffett would have existed in Irving Fisher’s perfect world that firm value is singly determined by its “productive opportunities.” However or by whomever it is financed is irrelevant. Apple is what Apple is, either before or after Buffett (Icahn) bought (sold) the stocks.
Big name investors’ positions on the stock cannot change the fact that Apple announced its first quarterly drop in sales in 13 years; that Apple’s Greater China region just saw a 26% decline in revenue; that Tim Cook is not Steve Jobs, and that the biggest growth story in this century becomes a value stock.
It is also important to recognize that Buffett and Icahn have totally different investment styles. Icahn is an activist investor seeking controllable stock returns. Buffett, is the de factor largest private equity investor. As a stock should not be valued by its investors’ names, investors cannot be judged by their single stock position.
Anyway, who dares to judge an investor who has returned his shareholders 1,826,163% in the 50-year period 1965-2014, an annual return of 21.6%, compared with 9.9% S&P 500 return? Or who are we to challenge someone has a cool name rhymed with “Icon?”