This is almost certainly a bet by Ted Weschler or Todd Combs - Buffett's chief investing lieutenants.
Buffett has maintained his aversion to tech as he doesn't "understand" it, and I see nothing to indicate he's changed his mind at this stage in the game.
Also - a $1bn investment is relatively small change for Buffett, but fits squarely within the size range of Ted and Todd's reported $8-10b (each) investment warchest.
: Not "understanding" doesn't mean he doesn't or couldn't understand the technology aspects; rather, it means he doesn't have the ability to see which of the participants will survive and thrive in 10 years time to justify an investment today. IBM is a notable exception.
Is trade the right word here? It seems like there must have been lots of trades in order to establish such a position...
Source: listening to people who actually know what they are talking about. I may have mis-listened.
So, if I send FoK Buy 100 shares @ 500$, then I could end up with 100 fills of size 1, or 1 fill of size 100. It makes no difference (except occasionally in commissions/costs depending on exchange). However if there were only 99 shares it would not partially fill, and would simply cancel unfilled.
Immediate or Cancel would allow you to get "up to 100 shares at a price of 500" and cancel instantly once available volume was consumed.
A 'trade' is also parlance for 'taking a position or bet' in finance.
Now the decision to buy IBM is more around software and services. Outsourcing contracts have long lives, but software and implementation less so.
This is where the Growth investor looks at something different than the Value investor. The growth investor says, "They're technologically irrelevant. They're still hawking Lotus Notes!"  The value investor says, "Their PE is 11, and they're buying back every share in sight." 
IBM realized a while ago that the actual machines were replaceable, but the expertise needed to do integration on the scale they operate at less so. And given the poor success rate of major upgrade/integration projects, I expect "hire IBM" is still a fairly safe decision at the C/VP level. Whether legacy enterprises* are running mainframe or fail-tolerant distributed infrastructures, most of them are more than happy to throw money at someone to reliably turn the crank and keep them working.
Edit Side note: Does Amazon actually not have a services org to build on top of AWS? Seems like they could create one just from IBM layoffs and start helping some of these sorts of customers migrate to AWS.
*Excludes the vast majority of companies mentioned on HN
I'm a BH investor, and frankly I don't like them going into this space.
I hope their Apple purchase isn't an indicator of the same.
Whether it is dying or not I would not listen to him.
Edit: Grammar mistake
Managing to the future by getting rid of the dead weight is the only way you can survive to be a 100+ year old company in the technology space.
The aspect of dying is a forward looking thought which presumes that growth has ceased within the organization and the best they can do is to maintain their current state. I think that's a fairly accurate depiction of IBM's business although the recent performance notes I've seen of the Power chipset with PG_SQL are pretty encouraging.
Be careful! at 95% world-wide saturation for smartphones the answer is very different now than it was in 2009...
China's median income is maybe $8,000/year or so.
India's median income is $1,600/year.
They're big countries, but they aren't that big. Each is about 4x the size of the United States, or about 2x the size of all of Europe. And obviously with those kind of incomes, the addressable market at anything vaguely close to US/European prices is a small fraction of the total population. And China at least is pretty protectionist.
At the same time, yes, everyone in the US/Europe already has a smartphone, noted. And yes, perhaps the upgrade market is getting a bit softer -- but still, it's not THAT soft. There are plenty of people in the US or Europe who will happily buy an iPhone every year or two for the next several iPhone generations, and a larger contingent who will buy every three or four years, but that's far from nothing. And Apple can at any time it feels like it wants to cut some margins and fight with Android for market share, in whatever judicious way it wants to.
Apple in 2015 was a unique company at the pinnacle of a unique moment in technology. It's may never be the company it was in 2015 again. But it turns out that there's a hell of a lot of value in a company that's not quite what Apple was in 2015.
It can be evaluated as a value stock like many of his other investments rather than a crazy infinity/100+ PE stock that requires understanding if the tech is viable or not
This! is exactly what made tech such an easy investment growth. Mainstream (2008) investors use three things to size a company: Industry and Market, Challenges, Production. Mainstream didn't get it. Underground did. And they were able to get in early on the action.
In virtually every traditional industry, production is simple and easy to measure, like coal mining for example. "See how quickly you can mine coal and compare that to how quickly you are mining coal."
But in Tech, every new product is a different raw material. The market is tested each time a new raw material is introduced. (Nobody knew the first iPhone was going to be a hit until the day the iPhone was sold, and THEN Apple's stock went up.)
For traditional investors, they don't understand what the question is when a new product is introduced (ex. Kevin O'Leary). The user however does understand. And that is what makes an investment a no-brainer.
However, these days, the traditional investors are not investing in Apple because they get the tech. Instead, they are betting on Apple specifically as a machine for tech production, regardless of product. I still don't think they get it.
More like you've gone up 1 level in the tech tree, and tech level n-1 items are the crafting components of level n. (I'm writing a game with a procedurally generated tech tree like this.)
This is not just exclusive to tech. Board games, books, Toyota are all are their own 'raw material.'
I'm not for sure Tim Cook does, either.
Buffett and Berkshire do tend to love companies that generate cash, and Apple certainly does that. They don't tend to chase massive growth, but rather steady climbs backed by real profits. It seems like a pretty reasonable fit.
I found it odd and since the numbers told another story (record high earnings, consistently decreasing debt, etc), I wondered what was the reason, so I made a prognostic about what I thought made sense and wrote it down to learn, tracking my thought process and prediction (verba volant, scripta manent)..
You can just look AAPL up to 5 years and see what I was looking at Sep 2012 peak to Jun 2013).
You have to divide the figures given in my note by 7 to make up for the 2014 split.
If you follow the link at the bottom of the chart you should see the other chart I made back in 2013 but which got totally ruined because the website could'nt handle the split 7:1 correctly. A shame, what a great "told you so" punchline I could have by now:D
They'd resort to other ways to scrounge for a living using their previous skillset, such as becoming Fortune Tellers; that is until someone starts tracking their predictions too.
If you're an "analyst" and your predictions are worse than tossing a coin, what on earth is the use of you?
The whole jumpiness of the people in that line of work is quite interesting. As if the goal is to drink large volumes of coffee, be stressed, run around with papers and be excited about what a bank thinks about a stock. Yes, but what do you think about that stock and are you aware that tickers represent real companies with real people in an economic context with real problems needing real solutions? That's similar to starting a startup just for the sake of wearing a hoodie and being a "startup guy" and talking about Heroku and Docker and code and exit strategies and forgetting to solve a problem.
Apple's great at reaping rewards for 5-10 years when they crack a new market. They're less great at winning over the longer-term in mature market categories. (That's probably the bigger problem with industrial design-based brands though -- they're far more susceptible to copycatting over a long enough period. All the perils of fashion without the agility to change things as quickly)
They are missing the VR wave completely, or in the very least very late to market. This almost categorically removes them from consideration in the gaming market.
Windows is making huge UX improvements year-over-year while OSX updates are incremental at best.
Some recent flops:
- fitness tracking
- high end pcs (MacPro still has fundamental hardware/driver issues years later. It was never worth its absurd cost. 5k iMac features a mid-range GPU from 2012)
- voice assistants
- business productivity software (iWork)
The VR wave is just starting. The only VR devices that will matter in 10 years will be standalone mobile devices in the $500 price range. When I look at Oculus's technical achievements I don't see anything difficult for Apple to copy. On the contrary, I think Apple's mobile chip design expertise, vertical integration, and developer base put them in a great position to release a great mobile VR device. Apple is probably the strongest company out there in power efficiency, which is the central limiting factor for mobile VR.
Frankly, I think Apple should sit out this generation, and let Facebook/Microsoft et al spend the money to do free market research for them. They can just do R&D behind closed doors until they have something special. VR with a cable tied to a giant PC is cool, but it will never be a big market by Apple standards.
Where will Apple be when there are VR devices in everyone's Christmas stockings? That's the question.
As for missing VR; VR hasn't gotten off the ground yet. It's barely taxiing. Frankly, if Apple were to jump in anytime in the next year or two, it would probably fit their usual MO for when they join a market.
Not really. Very much remains to be seen what the big thing in AR/VR will actually be.
Also, how can you call them a failure at fitness trackers? They are by far the most profitable maker of fitness trackers.
Edit 1: Downvoters you realize the Mac (Laptop/Desktop) Division is 9.4% of Net Revenue? Source: http://files.shareholder.com/downloads/AAPL/2074014299x0x888...
In the most recent financial data I could find, Lenovo reported total company revenue of almost $13 billion, and Apple reported Mac-only revenue of just over $5 billion. So again: not the leader but doing a lot more than just surviving in the PC space.
Since that has probably increased eg "Mac laptop revenues rose by 10.9 percent during the first six months of 2015, year over year, while Windows PCs fell by 9 percent, and Chromebooks contracted by 9.5 percent."
Not bad really.
>While they've been profitable in the PC space (laptops/desktops) to call them successful is a bit of stretch.
>Apple's margins are rumoured to be a large multiple of that of other laptop makers.
So we agree they're profitable but you are simply arguing they are so more profitable their volumes don't matter.
So do they? If we want to break out numbers  from March 2016 quarterly report. Mac (Laptops/PC's) accounts for $12.5bil Net Sales, which is 9.4% of quarterly sales totally <11 million units.
The funny thing about this is their Services category (iCloud, iTunes, App Store, Apple Health Kit) has (more then) doubled in 6 months and its now ~$3bil of Net Sales of their Mac category. At current growth rate's it'll eclipse it sometimes this year.
The Mac sector is quickly becoming the lowest selling division of the company. Currently only under performed by the Other category (Beats, AppleTV, AppleWatch, Cables, WatchStraps, Keyboards, Mice, etc., etc.). This is what I mean by surviving not thriving. The division is a very small corner of the company, and getting smaller.
I don't think that matters when you're looking at it from a value perspective, as BH does. The margins are the best out of anyone in that sector and it's making tons of cash. And, as you said, that's one of the lowest performing divisions of the company. They're basically the BMW of laptops and you're acting like that's a bad thing.
- Non-trival amount of resources go into hardware R&D and OSX development
- Desktop and laptop computer market is increasingly shrinking
- Revenue growth is flat
It's not as simple as "well we make $x for every iOS developer, $x/2 for every OSX developer and that's going to be $x/3 in 5 years" but that's the general gist of it. Consumers are not buying computers and Apple has never been a major business player.
1. A very large portion of their OS X development is directly applicable to what goes into iOS. And it's becoming more so. The same for their hardware R&D and what ends up being usable in their mobile products.
2. The consumer desktop and laptop market has been shrinking, because consumers have switched to mobile. Which is most of Apple's income.
3. Growth may be flat, but the margins are good, which exactly what BH is looking for.
Finally, and most obviously, Apple needs computers in order to make software for mobile. They own pretty much the whole stack and are able to make a hefty profit by selling their tools (hardware and software), that they would need anyways, to the rest of the world. This is classic vertical integration and it makes alot of sense business-wise.
Furthermore Apple's revenue growth may be flat, but their competitors are in actual decline.
Consumers are increasingly buying apple computers instead of any other, and this is increasingly true in enterprises as well as consumer spaces.
The percentage of Apple's business that is represented by PCs will obviously decrease as they add other business lines. What does that have to do with anything?
It turns out you can enjoy network effects as well: at one point iPods accounted for over half of the global flash memory market. That was surely useful in bringing the iPhone and MacBook Air to market, no? I'd also say the PA Semi investment is paying off since Apple has owned the mobile SoC performance crown for a while now, with no competition in sight.
But high margins without a monopoly is a tough course to chart indefinitely. I think if Apple is still the incredible player it is in another 30 years, it'll probably be because they've integrated cloud accounts + hardware + security to the extent user abandonment of their platform is almost unheard of.
PS: Surprised no one pointed out my incorrect Apple ticker *AAPL
They are very successful despite not selling the most units and not seeing explosive growth.
Also, comparing the Mac business to Apple's other businesses is irrelevant - you may as well compare it with Pharmaceuticals - the relevant comparison is to other PC vendors, wherein you will find that they are highly profitable.
I attribute this to a very top-down design approach that only worked due to a visionary leader. Steve Jobs was able to predict what consumers would want before it was even remotely feasible, and would demand it from his engineers so that Apple could win the market while it was still in its infancy. A more bottom-up approach a la Microsoft or Google is more successful at the long game, because it's more efficient at spending its resources (i.e. focusing on the software and outsourcing the hardware on Android). In that time Jobs already had Apple cranking away on the Next Big Thing. Hit on one market every decade or two and you have a successful company. Hit on two in a row and you have the GDP of a small country.
In a post-Jobs Apple however, they're going to have to bet on either still having that same predictive power, or changing strategies to be more bottom-up. My bet is on the latter since a) Jobs was a generational business talent b) they now have an established premium brand and c) basically infinite money to spend on talent/resources.
All that combines to a very successful foundation for a company, but don't bet on them having the same playbook as the last 30 years.
It's a plan that has been working out fairly well.
Top 20 holdings still sounds like a substantial bet...
Can you figure out what apple would be doing 10 years from now. If no then its out of your circle of competence.
Do you know what Coca Cola would be doing 10 years from now, if yes then it is in your circle of competence.
If they feel like they understand how Apple works by now, that would make it qualify as not not-understanding, and thus it would not break the "rule".
Apple is a tech company but in the eyes of Berkshire maybe they are predictable enough regardless of what they produce (i.e. in terms of their cash flow, product strategy, etc).
For smaller companies it can also come out in a 13D which is faster (within 10 days), but only if the investment is more than 5% of the company. That's why there are a lot of ownership stakes of 4.9%.
Is reporting speed really important enough to change the size of your investment?
Interesting, I think it's the same percentage in Indian stock exchanges.
Corporate insiders (officers, directors, and employees) need to disclose trades involving their own company.
I don't believe an individual trading his or her own money need to disclose anything to the SEC. I could be wrong though.
I wonder if this is a sign of the internal politics at BH as 85 year old Buffet gets closer to retirement/death. The younger guys want to make their mark and betting on a typically galloping horse like Apple is a nice way to start the pissing contents with others wanting to run BH after Buffet goes. If Apple does a massive rebound then the guy who made this call will be seen as the young whippersnapper who 'knows tech' and can take BH into the 21st century.
Rationale here from a comment over 3 months ago:
> last time I was on an airplane (December), every single older woman over the age of 60 had an iPhone. This means that it's not only reached critical mass (the late majority on the technology adoption curve has been achieved), but now it's no longer hip.
> I'm not sure what will be next, but I'm guessing it won't be Apple's.
> Were I gambling man, I'd have shorted Apple's stock right there after that airplane ride.
So when I'm wrong, y'all can roast me proper.
An adoption curve leveling off is a normal thing in business; money can still be made. When did the adoption curves for insurance, paint, homes, jewelry, soft drinks, etc. level off? Long before Berkshire Hathaway came along, but they have done pretty well in all of those of markets.
I think BH has a good chance of getting a return.
Edit: They're paying a modest dividend as well. AAPL is becoming more of a mature stock, but that's not a bad thing.
For one thing you haven't considered that this might be priced into their P/E ratio, unlike most other growth tech companies. If you were a "gambling man" this would be part of the equation in deciding if they are over- or undervalued.
There's no Android device on earth that's nearly as hip as the iPhone. Regardless of how many old people are on iOS.
They became unappealing because they were simply unappealing to young people and there were more appealing options for young people.
Android has yet to produce anything that even remotely resembles a more appealing option to these demographics. Apple is an expert in "hip." If you have an Android and your friend has an iPhone, you know that your messages are showing up green whereas everyone else's are showing up blue. This lack of totally 100% superficial conformity alone means that Android has a monstrous hill to climb with younger people, e.g. the people who care most deeply about acceptance amongst peers.
Certainly skewing old wasn't the only factor for Cadillac but it definitely was a component and they are trying to spend their way out of that image (both with ads and with more performance-minded cars).
I agree that Apple is an expert at hip but their time dominating is limited. It gets harder to be hip when so many people, especially those much older have them and mom/dad/grandma/grandpa all want to Facetime you. Younger people have been migrating their time away from Facebook because of the saturation.
I disagree on Android and the data doesn't back up your statements. Android is comparable with younger demos  and has more market share  (esp. outside the US)  so they don't "have a monstrous hill" to climb with younger people. Android and device manufacturers are positioned quite well.
It's going to be a challenge for Apple to continue to ask for a premium price when they no longer have a compelling quality argument and Android OS and devices keep getting better with many outperforming the iPhone. People are also getting tired of Apple's closed systems. They are "The Man" but most consumers haven't realized it yet. The squeezing they do with storage is ridiculous.
 52.8% market share in the US, Jan 2016 - https://www.comscore.com/Insights/Rankings/comScore-Reports-...
 80.7% market share globally, 4Q2015 - http://www.gartner.com/newsroom/id/3215217
 52% of millenials have an Android device vs 44% for iPhone, 2014 - http://www.techtimes.com/articles/15084/20140908/draft-andro...
Therefore Apple is becoming uncool? Kids are moving away from Facebook not because old people are using it and that makes it uncool. It's because old people are using it and that means old people are watching them with it. Facebook is also just getting worse and worse as a product, while things like Snapchat are getting better and don't have parents/employers looking over your shoulder.
Re: Android, these are the same arguments we've seen since Android first started getting market share, yet Apple is still chugging along just fine. Market share is only one part of the story, and it's so far from an accurate indicator of "in" factor (exclusive things are often "in") OR of product health/profitability.
"People" are getting tired of closed systems? Which people? FOSS advocates? Hackers and tinkerers? Thank god there are 100x more people with equivalent checkbooks and less idealism when it comes to which devices they purchase.
iOS seems to have better kids content and iPads and iPhones are quite durable from drop with protection.
Cadillac was a luxury brand that completely lost the plot, in terms of quality, service and importantly: brand.
As a result, luxury customers went elsewhere almost entirely (hello German sedans) and it stopped being an aspirational brand.
With younger buyers mostly not interested, most of success was selling to older customers for whom the brand still had left over positive associations, plus some die hard "no foreign cars" types. But this just made the brand problem worse, cementing the "old person car" brand.
So yes, they're fighting it now (without much success). But the real problem was that they started to peddle bad cars, and competitors ate their lunch. This in no way resembles the current situation with iPhone.
$80B in 1993 are equivalent to $114.79B in 2007.
By the way, a company doesn't need to do 10x the stock price to deliver 10x to investors. They can pay dividends. They can sell divisions.
We have been enjoying exponential growth for a while now:
So Apple (and Samsung, etc.) may have exhausted a lot of the growth opportunities in the mobile market, but there are still other markets for them. Apple didn't even have a phone product 10 years ago, so it's hard to say what their future endeavors will be.
Betting on Apple doesn't mean betting solely on the iPhone.
(I think) you only take into account the US Market but the emerging world is late to the party and should represent a big piece of the pie. It hasn't reached majority tech adoption nor is it no longer hip.
That said, I also think its a loosing move because of the downwards trend in AAPL stock- bit that's only layman's conjecture. I guess it depends for how long they want to hold it.
I think it hasn't yet reached critical mass yet in plenty of second world countries. In Romania for instance there are plenty of lower end phones (specially /w teenagers) not because it's not hip (on the contrary, it yields social status) but because compared to the average wage here it's expensive as hell. The iPhone SE will probably sell heavily around here.
An US (correct me if I'm wrong) airport might not actually give an accurate picture of the market since the lower class doesn't fly planes that often.
Of course Alphabet would be a more logical path, so this theory might be bollocks.
Why? The only thing we know for sure is that Google has been much less secretive about its desires. That doesn't mean that it is further ahead or has a better solution (and for the record, I'm not arguing if they do or don't).
Here's how I assume it would work. For an insurance company to be profitable, premium payments need to be larger than claims payouts.
If we assume self-driving cars will be a lot safer, then claims payouts will drop significantly. If we assume insurance companies compete with each other, then that opens up their margins and eventually that will contract again as they all lower premiums to compete.
The end result is a smaller total amount of cash flowing through those businesses. The whole industry will contract because there's just less need for it to exist. You can think of insurance companies like a farm that harvests risk. With less risky automobiles, there's simply less crop for them to reap.
What driver exactly am I insuring?
The same reason property owners in general by liability insurance for liabilities that may occur to do property they own.
> What driver exactly am I insuring?
Most likely, you're insuring against liability resulting from your obligation as the owner (or leaseholder-in-possession, in the case of a lease) of the autonomous vehicle to maintain the vehicle in condition for safe operation and to remove it from operation if that is not possible.
The risk you're insuring is negligent or wilful bad driving, and risks inherent in the technology.
All of the above is true for self-driving cars, only with much-reduced negligent risk. The premiums will go down significantly, but the consumer motivation and the public policy interest to have insurance will remain. It may be assumed by the manufacturers for 100% self-driven cars, but insurance of outsized payouts is not something unique to the current iteration of the car industry.
This bit.ly link redirects you to the first google hit after looking for this article on Google. For some reason this circumvents the paywall.
I don't think Buffet is betting on technology. From his perspective he is betting on the car and car brand of the future.
I personally don't see Apple doing too much in the short term, but they'll certainly continue to be around, and will probably match the market in returns for the foreseeable future.
Experience: Even 10 years back putting when in an investment management team, a $100 million order (of roughly same magnitude for total outstanding) was done painstakingly, often over several days, via various brokers, varying what was done based on intra-hour liquidity. Now, intra-hour liquidity is much less than hours and highly automated, so anyone HFT looking, would be interested.
Not that big a bet on BH's part.
Seems like real money to me.
Edit: fixed typo
@BeckyQuick on CNBC this morning
In reality, Apple has always been a long for me, and presumably anyone working in tech that invests directly.
That's not a huge indictment of apple, but rather a concern.
He did note that Apple still looked cheap: http://www.cnbc.com/2016/04/28/icahn-we-no-longer-have-a-pos....
It's hard to read too much into it. For all we know, Ichan wants to play things a little conservative for the rest of 2016 due to big losses in his oil investments.
After that happens market participants can sell those shares to each other based on supply and demand. As demand for a companies shares rise, prices rise and vice versa. The secondary market is what you and I as individuals think of when we talk about buying and selling stocks. There is no real discount that Apple could offer Berkshire because they aren't selling the shares, market participants are (individual investors, brokers etc). The trade would take place as a complex series of transactions on a variety of exchanges. Sometimes Nasdaq, but other times on exchanges like ArcaEdge, Bats, Direct Edge, NYSE and others.
The complexity is that if you dump 1 Billion dollars into the market to buy x number of shares of AAPL you will drastically increase demand and move the price considerably, so the trade must be executed as a series of transactions over a given time period.
Now if one public company buys another public company in a merger there is a set share price that is negotiated but that's outside of the normal process of buying and selling stocks.
It all comes down to whether both Apple and Berkshire can agree on a price and cash flow that is better than buying/selling on the open market. This would probably not be a great discount for the buyer. Other companies would probably still ask Goldman to broker the sale (at a lower fee) and take care of regulatory compliance, but both AAPL and BRK like to maintain in-depth knowledge of the intricacies of the stock market in-house, so they may just do everything themselves.
I mean, a billion IS a lot of money, but it's a very small risk on BH's part, and an even smaller part on Apple's.
That amount of money is a lot of money relative to other money, but it's not really a big deal relative to either party here.
However, I think that Buffett is just making a statement of 'look how much I think of Apple' by throwing that bn around, perhaps inspiring other investors?
Not really my preferred science...
edit: For some reason I didn't process that the investment was old, although it's the first few paragraphs of the article.
> Berkshire’s positions were disclosed in a 13F filing with the Securities and Exchange Commission, a quarterly requirement for investors managing more than $100 million. The report indicates the number of shares held and the value of each stake at the end of the quarter, so it isn’t clear if Mr. Buffett’s firm has continued buying the stock since the quarter ended.
The amount may be small, but Buffet didn't get where he is with random bets.
"Mr. Buffett has said that large stock picks of above $1 billion are usually made by him, while smaller purchases are made by one of the two managers. They don’t consult with him before making their investing decisions, Mr. Buffett added Monday."
Apple has expanded into every available market on the planet (literally). The only way for them to grow at this point is to increase their market share relative to android, or increase world economic growth sufficiently that more people in developing countries can buy iPhones.
Increasing their market share relative to android in any significant way seems incredibly unlikely to me at this point. As technology stagnates (as is happening with smart phones), the premium products lose cachet and the lower-end products start to achieve parity with their premium competition.
The two markets where they could still theoretically hope to achieve more growth/penetration are China and India. But China has been antagonistic to them of late, and has demonstrated an interest in protecting its own incumbents who are now making phones that even Westerners will buy (e.g. Huawei). India on the other hand is a highly tech-oriented culture, and as such has a predilection for customization and control that tends to make them prefer android phones. Not to mention that the CEOs of both Microsoft and Google (the only two competitor platforms to the iPhone) are currently Indian, and both companies have demonstrated a specific interest (especially Google) of expanding in the Indian market. And I think that gives them an advantage that's hard to overstate.
All of this would be fine if the market itself were expanding. But it's not. People are upgrading less and less frequently. This looks to me just like the PC market of 5-10 years ago or so. Things have gotten "good enough" for most people. I certainly no longer feel compelled to have the latest and greatest phone right away, and it seems to me that most people feel the same.
Lastly, there is the possibility that they will create some new category defining product. This is of course a real possibility, but I feel pretty confident that anything they attempt to do in the car market will fall flat on its face. I could certainly be wrong here, but I just don't see how they could possibly offer something so much better than existing cars that i'd want to pay an Apple-level premium for it. Especially when they're competing against someone like Tesla, who has already captured all of the rebellious smart-person cool points in this category.
Of course, I could certainly be spectacularly wrong. And to be honest, if I am, I don't think i'd mind losing the money too much. Because it'd mean that we'd all probably have some cool new product to play with.
2. BH just doesn't think like that. They don't often invest to sell long term, but are looking for either things that fit into their stable of companies, or are things that are likely to pay a steady dividend over the long run without losing too much value over time.
Since there's no way they're going to be willing/able to acquire a huge stake in AAPL, they're likely planning on just holding onto it and hoping that the dividend + what they sell it at pays back $1B over 10-20 years, which is entirely possible.
Counter-example in a mature industry: Porsche. When the GTR was launched 9 years ago, people were hyping it to be the death knell of all other performance cars. Instead, today we have a wider selection of very good cars and the GTR is no longer the no-brainer choice for performance enthusiasts. Yes, it still offers good performance-value, but there are other good choices out there as well. Of all the car makers, Porsche was thought to be the most severely impacted by the GTR and yet they have gone on to greater heights.
>The two markets where they could still theoretically hope to achieve more growth/penetration are China and India. But China has been antagonistic to them of late, and has demonstrated an interest in protecting its own incumbents who are now making phones that even Westerners will buy (e.g. Huawei)<
How much money is Huawei making from selling Android phones? What about that Google ad revenue in China, how's that doing?
>Not to mention that the CEOs of both Microsoft and Google (the only two competitor platforms to the iPhone) are currently Indian, and both companies have demonstrated a specific interest (especially Google) of expanding in the Indian market. And I think that gives them an advantage that's hard to overstate.<
Microsoft's chances at mobile at this stage are as good as Ted Cruz's winning the Republican nomination. Some number closer to zero. Again, how much is Google making from Android phone sales? How are the Nexus sales numbers?
Google's competitor is not Apple. Google's competitor is Facebook. Luckily for Google, Facebook is banned in China too.
>I certainly no longer feel compelled to have the latest and greatest phone right away, and it seems to me that most people feel the same.<
The smartphone is a very interesting product. It is used multiple times a day, is cheap enough to be ubiquitous yet still offers value to people who seek to differentiate. In my view this is only the beginning of the smartphone race. Technologies like NFC/Apple Pay are still in their infancy and are not widespread enough. There will be more sensors, better imaging technology, more features that people would desire.
How the differentiation is implemented, matters. You will not find someone cross-shopping Hermès with Coach. Similarly the large majority of people will not cross-shop a Ferrari with a Nissan. That is not to say anything about the value of the brand. It just means there are different markets being served.
Ya I wouldn't make the mistake of saying that it's the death-knell of the smart phone. I just think we'll be seeing a significant contraction of the market that has driven the insane profits apple has had for the past few years. Certainly smartphones will be a massive and massively profitable product for years to come.
> How much money is Huawei making from selling Android phones? What about that Google ad revenue in China, how's that doing?
Much less, even more so in unit terms. I wouldn't invest in Google or Huawei at the moment either. I'm not short Apple because I think those companies are going to do well, I think they're all likely to do poorly. Google and Huawei will expand their market a bit, I think, but their unit economics suck relative to Apple so it won't matter as much.
> Microsoft's chances at mobile at this stage are as good as Ted Cruz's winning the Republican nomination. Some number closer to zero. Again, how much is Google making from Android phone sales? How are the Nexus sales numbers?
Google's competitor is not Apple. Google's competitor is Facebook. Luckily for Google, Facebook is banned in China too.
Totally agree. Again, I don't expect Google to do well at the expense of Apple. For Google phones are just a way of pushing their services, so gaining market share vs Apple doesn't help them all that much in terms of their bottom line.
> The smartphone is a very interesting product. It is used multiple times a day, is cheap enough to be ubiquitous yet still offers value to people who seek to differentiate. In my view this is only the beginning of the smartphone race. Technologies like NFC/Apple Pay are still in their infancy and are not widespread enough. There will be more sensors, better imaging technology, more features that people would desire.
How the differentiation is implemented, matters. You will not find someone cross-shopping Hermès with Coach. Similarly the large majority of people will not cross-shop a Ferrari with a Nissan. That is not to say anything about the value of the brand. It just means there are different markets being served.
Ya, I don't disagree here either. I don't expect Apple to lose significant market share in places where they're already established. I mostly expect that the upgrade rate will slow, and they will not gain new market share in India and China. The sum of those two things is a substantial decline in profits for them over the next couple of years.
I could certainly be wrong about all this. It's actually the first time i've ever shorted something, and it's kind of just an experiment to get my feet wet with more exotic trades. I don't claim to be any sort of expert on the subject :).
I'm unsure my point came across clearly; if it didn't then the fault lies with me.
The GTR and the 911 (in all its variants) are in the performance segment. No one is saying just because the GTR exists, all other segments like SUVs, MPVs, saloons/sedans etc will no longer exist. To reiterate: despite Porsches costing more and GTRs costing less, and on an objective level the GTR is a better car in terms of performance, 911 sales are not flagging off. They have instead increased. And the 911 is already more than 50 years old.  So your conjecture that premium luxury smartphone sales like the iPhone will level off or even be reduced due to "commoditization" is not very well-supported. In fact the inverse is true: Porsche is one of the most profitable car makers on a per-unit basis. 
>>I don't expect Apple to lose significant market share in places where they're already established. I mostly expect that the upgrade rate will slow, and they will not gain new market share in India and China. The sum of those two things is a substantial decline in profits for them over the next couple of years.<<
I think this is where we fundamentally disagree. In my experience I have never once met a person who said they aspire to own a Hyundai, Kia, Lada etc or have a poster of these cars on their bedroom wall. Nothing wrong with these brands of course, they bring in profits for the manufacturers. But these are different markets we are talking about.
It is true that Porsche had to come up with the Cayenne to stave off bankruptcy, because at that time SUVs were in demand and they did not have one in their lineup. Yet this is instructive as it only reinforces my point because the Cayenne is now the #1 selling Porsche. Chevy, Ford and all the other makers combined can continue to sell more SUVs than Porsche does Cayennes but they are in different markets. People who buy Cayennes don't even consider these other brands. They might consider Land Rover or Mercedes/BMW or even sister-label Audi (essentially the same chassis). Same applies to the iPhone vis-a-vis Android "replacements". Who knows, perhaps the iPhone SE may one day become the #1 selling iPhone?
tl;dr it is possible for a premium luxury manufacturer to continue to grow and expand its business, despite being in a mature industry like autos.
Cars can get away with this because they are so well wrapped up with the presentation and identity of their owners/drivers. To some extent, this is true of phones. But I guess I just don't think it's nearly as much the case as it is with cars. Somewhat ironically, this is because an iPhone is not expensive enough to really say much about the wealth of its owner. At least - not in the way that a car does.
Admittedly, that might be slightly hold less true in developing economies, where the ownership of an iPhone really is something only the (relatively) wealthy can attain. But in that case, their rate of expansion is determined by the rate at which people rise out of poverty. Which I don't think is fast enough to outpace the declining upgrade rates.
Without any hindsight involved, 10 years ago the continuous rise for several years seemed inevitable AT THE TIME.
Now it's not so clear.
But it's not because "it's easier to predict the last 10 years than the next ten years".
Rather it's because it was easier to predict the next ten years in 2006 than it is now.
It's easy to cherry pick dates to suit your argument.
12 months leading to end of 2015: down 12%
24 months leading to end of 2015: up 11%
36 months leading to end of 2015: up 40%
~5.5 months between end of 2015 and today: up 8%
Your other statements... well maybe you're 100% right and not even misleading on those, but after choosing such a bad statement for your lede I'm not going to bother looking them up.
Edit: Actually I was curious enough to look into one more of your "facts". According to Business Insider, S&P 500 doesn't even come close to beating B.H. But maybe you have better data than them. http://static2.uk.businessinsider.com/image/54f4d8a6dd08955d...
>Berkshire Hathaway’s poor performance in 2015 is noticeable due to the huge underperformance relative to the market. But a closer look at the performance of the company over the past three years suggests that this is something that has been going on for some time. Berkshire Hathaway has actually significantly underperformed the market over the past five years, with a return of 61.4% vs. 71.4% for the S&P 500 Growth Index (the index tracks the performance of large-cap U.S. securities with growth characteristics).
Your Business Insider Chart is a chart of a price index from the day he took over Berkshire, things aren't what they used to be, it was my bad that I did not preface Growth Index, but your conclusion that the first statement was misleading is completely incorrect
Certainly the last 5 years tells more of a trend than historic performance. My facts are correct and Berkshire has been on the decline for a while, my opinion its certainly not worthy of being downvoted
1964-2015, the S&P500 returned 11,355% and BRK returned 1,598,284%.
p.s. not downvoting you, just disagreeing.
> 12 months leading to end of 2015: down 12%
Quite clearly I understood what you meant. And then I explained why the fact you picked was misleading. Not untrue, just misleading.