

Steve Jobs ignored Warren Buffett's advice for a stock buyback - anderzole
http://www.networkworld.com/community/node/79902

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mrb
I read both Jobs and Buffett's biographies (Steve Jobs & The Snowball). I
understand these guys' mindsets reasonably well.

The article says that, ironically, Buffett himself never bought Apple stock.
The reason is simple. Buffett is an extremely cautious investor who only
invested in businesses he understood _perfectly_ , down to how the products
were made, what made them superior to competitors, what the cost was of each
part, who were the suppliers, etc. Buffett has always admitted he is not a
technology guy. During the dotcom bubble, for example, he never invested a
single penny in any of the Internet companies.

The advice that Buffett gave to Jobs ("if you think your stock is undervalued,
then buy it back") is perfectly logical (after all, who better than the Apple
CEO would understand perfectly his own business?), but for that same reason
(Buffett not being familiar with this business), it was also logical for
Buffett to not buy Apple stock.

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aidenn0
Even more so, in Buffet's mindset, Jobs can value AAPL better than he, so when
Jobs fails to do a stock buyback, it's an indication that Jobs does not think
it's significantly undervalued.

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jakarta
Buffett has called Henry Singleton the greatest capital allocator of all time:
<http://en.wikipedia.org/wiki/Henry_Earl_Singleton>

Basically, the Singleton model was to focus on the long term on building his
company Teledyne (started out building aerospace systems/microelectronics).

What Singleton did was recognize when his stock was over and undervalued.
During periods of overvaluation, he would issue stock and use it as currency
to acquire other companies. This was pretty smart because he was able to get
new businesses using a currency that was temporarily worth more than cash (the
inflated shares). Then, during market downturns, he would repurchase shares.
He basically was able to operate efficiently in both periods of over and
undervaluation, while creating value for shareholders.

Here's a decent article on Singleton: [http://www.observer.com/2003/04/the-
brain-behind-teledyne-a-...](http://www.observer.com/2003/04/the-brain-behind-
teledyne-a-great-american-capitalist/)

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orijing
Interesting man!

What I wonder about is how banking fees impacted his ability to issue/buy back
shares. For example, secondaries handled by an investment bank cost a fraction
of the issue. So his shares must have been significantly under and over valued
in order for his buying/selling to be profitable.

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wasd
A friend of mine was intering at Apple this summer and during the last week he
went to a talk regarding this topic. The rational is that they've always
needed a lot of cash on hand because Apple takes a lot big risks with its
products and that lot of the cash is acquired overseas so its expensive to
bring it back to the US. Just some food for thought.

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beatle
you got this info from an intern who got this information from a talk from
some guy other than the CEO/CFO?

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elithrar
> you got this info from an intern who got this information from a talk from
> some guy other than the CEO/CFO?

The way he "sourced" this information might be questionable, but most of it is
indeed true. Apple _do_ have large cash reserves overseas[1], and they have
inferred (if not directly said) in earnings calls that their large cash hoard
gives them the ability to be agile when it comes to manufacturing.

[1] In fact, they are petitioning the US—along with many other large
corporations—to allow them tax breaks so they can bring their earnings back
into the country without paying _significant_ amounts in tax.

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yason
Both a buyback and dividends can be exploited by speculators: they can just
buy the stock beforehand and sell it at a higher price or after collecting
dividends. A wise thing would be to distribute cash to long-term owners based
on how many months and years each has owned the stock multiplied by the number
of stocks owned. However, I don't think that's possible in the current scheme.
You would need different sets of stock for different dividends and you don't
necessarily have records of the cumulate ownership of individual owners.

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TDL
Apple would have to issue a preferred stock for that. The structure you
suggest would not go over well with the investing public because of the
dilution that would be involved. Also, this scheme is much more convoluted
than a straight up preferred or dividend. Too much like a debt product; stock
investors don't like doing as much work as bond investors.

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brisance
Apple recently made an important change in how they operate. Directors must
now be voted in by majority. This signals to the market that they are taking
their investors seriously.

Which means if the majority of investors want a dividend somewhere down the
line, then the chances of it happening are higher.

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wmat
"Somewhat comically, and arguably very Jobsian, Buffet later heard that Jobs
had told people that he (Buffett) had agreed with Jobs' argument that Apple
should, in fact, do nothing with its cash.

The reality distortion field in full effect, folks."

For the rest of us, it's called lieing. Is it not?

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ksec
1.They aren't really cash, they are cash equivalent. And it is interesting for
other company, Newspaper only signal out what is really "cash" and leave those
"cash equivalent" like bonds as separate thing.

2\. Apple likes to have some money in the bank, so they dont need to borrow on
anything.

3\. Over 60% of its co called cash are overseas. Which means they cant really
do anything with it.

4\. The other 40%, are used for operational cost, paying big in front for
favorable price, R&D, and even acquiring companies.

5\. Apple has LOTS of High Profile Stores. Those Stores are long terms
liabilities, and they do cost a bit operate. In the case of another huge
economy downturn, those cash are what makes them stay afloat.

I was actually wondering what happens if Apple do have 100B to buy into bonds
or what ever, that is 2B a year of interest coming from it.

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vacri
I've heard it said here that apparently Apple doesn't pay dividends on its
stock, so that stock wouldn't be costing them money. Im a stockmarket newbie -
what tangible benefits would Apple get from a buyback if they're already not
paying dividends?

~~~
hristov
The apple shareholders would get a benefit in that they would end up owning a
bigger share of apple.

If you own say 1% of a company and the company buys back 50% of its stock,
then you will end up owning 2% of the company with the same shares.

Currently for each apple share you get ownership of a part of apple's business
and a part of apple's huge stockpile of money. The business would hopefully
grow and create profit for a long time to come (at least you believe that if
you own the shares), but the cash would sit around and do nothing. If you
think that the business is undervalued, than it is very much in your benefit
for apple to swap your share of the cash for an additional share of the
business.

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StavrosK
How so? If they don't pay dividends, what benefit will you gain from the
stock?

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idspispopd
There are a number of reasons to have stock in a company, the dividend returns
are often not a big factor, as the dividends are usually far less than the
cost of purchasing the shares.

Instead purchasing shares has other benefits, such as certain tax concessions
(e.g. franking). To increases in the capital value of the shares purchased
which can then be sold for a net profit. Additionally holding shares
(especially large numbers) gives you certain voting rights to how a company is
run. This is why certain wealthy individuals are known to purchase stock in
public media companies. (There are examples were some media influencing has
taken place.) You can also lease your shares/work with short sellers for
gains. (which is trying to earn money via speculating the movement of the
share price.)

A bit more on short selling: (this is grossly simplified)

Short selling is the idea of selling shares that have not been purchased
beforehand. Let's say Person A sells person B 50 shares at $1 each, however
after the deal is made the share price drops to 50c each. Person A is able to
scoop up the 50 shares for half the price, even though person B is contracted
to buy them for $1. In effect a decrease in the share price has given Person A
a profit. My example sounds a bit fraudulent (selling something that you don't
actually have.) In the real world it involves leasing shares and the idea that
shares will be available to buy at a later date. Porsche famously bankrupted
many short sellers /speculators by quitely buying up all the spare VW shares.
(Something they deny publicly.)

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StavrosK
I see, thank you. I'm not very knowledgeable about the stock market, but at
least I finally understand shorting!

