Warren Buffett Says Apple Should Buy Back Stock, Ignore Einhorn's Calls for Preferred Stock

[LagunaSol]

Apple will probably struggle going into the search business.

Of course they will. Just as Google initially struggled with the mobile OS business.

This is no reason not to get into this business though. It's strategically critical.

Google is Apple's houseguest, is sleeping with Apple's wife, and Apple just sits back and lets it happen. It's time for the "good guys" at Google to get the unmasking they deserve.

Search quality is based on data, and at this point, Google is so far ahead in the game that it is almost impossible to catch up.

Bing does just fine. People don't use it because, well, there's no incentive to. But MS had no problem getting up to speed with its search results.

I don't really want another repeat of the Maps fiasco. That generated so much bad publicity for Apple.

Apple is going to get bad publicity whenever things don't go flawlessly. That's the nature of the beast for Apple punditry. Again, that's no reason not to pursue a strategically critical business like search.

Apple just need to keep doing what they're good at, building great products that works and are fully integrated.

Obviously that isn't working when Google is providing Samsung with billions of dollars in free software development so Samsung can churn out plastic phones by the boatload while blasting the airways with hipster-filled ads about how "uncool" Apple is. Because, you know, have you see this big new plastic phone from the company who made your mom's refrigerator?

 

[skunk]

I'll repeat: Read War and Peace. Lookup Fabius Maximus. Kutuzov and Fabius Maximus won by doing nothing.

Inaction is itself a course of action.

 

[LagunaSol]

Wondering what privacy you loss from google?

Google knows the content of all of my emails. They know what I buy online. They know what I search for on the Web. They know what videos I watch on YouTube. They know where I'm driving, how fast I'm going, and where I stop to eat on the way. They know I have a doctor's appointment on my calendar Friday at 3 pm. They know I searched for "irritable bowel syndrome" today, so that's probably what ails me. They know what medications I've already tried because I've Googled the potential side-effects. They know who my friends and family are because they're on my contact lists and in my Google+ circles.

They know all of this and more about you too. Apparently you don't care. Good for you.

 

[absurdamerica]

Apple needs to introduce something very quick in order to stop this continual slide of their stock. Everyday it seems they hit a new low including today.

Not looking to invest in a tanking stock with nothing but rumors to look at for the future quarter.

So your suggestion is that Apple do the exact opposite of what Buffett just said?

 

[SockRolid]

But if you could buy dollar bills for 80 cents, it’s a very good thing to do.

Is that the best advice that the Wall Street parasites can come up with?
Thanks Warren.

 

[thundersteele]

I still don't understand why people here care so much about the AAPL share value. It's not like Apple needs money from them currently. Does everyone here buy shares together with their iPhones?

Things that benefit shareholders do not necessarily benefit customers - it's probably the opposite.

 

[Aragornii]

Assume AAPL is worth $600 but trades for $450. Let's say 800 million shares, the company is worth $480bn, but market caps is "only" $360 bn. If Apple bought back 200 million shares for $450 or $90bn, obviously the company value would go down from $480bn to $390bn (because $90bn are gone), but there would be only 600 million shares, so the actual value would go up to $650 per share. Basically this rewards share holders who keep their shares, while punishing those who sell shares at a low price.

The flaw in this argument is the assumption that the company value is something different than the share price at that point in time, and that by buying back the stock the market cap will magically rise from the "discounted" value to the undiscounted value. ie, you have a company with a market cap of $360 bn that gives away $90bn and suddenly the market cap rises to $390 bn.

 

[GenesisST]

Warren Buffet's investing guidance > Your investing guidance.

I think you statement could be more generic:

Any billionaire investor's advice > any comments on any fan forum

I mentioned "billionaire investor" to avoid the likes of Zuckerberg that is more like and "instant billionaire", though (debatle) hard work and being at the right place and right time.

 

[firewood]

I still don't understand why people here care so much about the AAPL share value....

Even if you don't hold AAPL shares, you might want to look at where your parents and other older relatives have their retirement savings parked, and what stocks those funds hold.

 

[paul4339]

I still don't understand why people here care so much about the AAPL share value....

because alot of people here are not just customers, they are shareholders as well.

.

 

[639051]

This might have been said already but the title just reminds me of a 90's movie ....

Einhorn is Finkle, Finkle is Einhorn .. AHHJJEHRJEHAEERR

 

[UnfetteredMind]

Really getting tired of the "Good think you are not in charge" auto reply on this forum. Their stock is down $283 from their high at the end of September.

I'm not charge but apparently Tim Cook isn't either. We have Great "Stuff" coming. It's all about Rumors and nothing to give investors any incentive to believe them until they prove to the investors that the "Stuff" they have isn't just rumors being made up by analysts.

So what should Tim do, show the items that they're working on but not released yet (so the copycats can get a jump on them)? Apple releases them when they're ready (generally anyway) so until that happens, the current situation is what you get. It certainly doesn't mean Tim isn't in charge.

 

[TallManNY]

How can Netflix be more of a burden than iTunes? Apple already has to deal with the media companies.

Netflix is also 99.5% of the work my TV does.

The burden is spending $10 billion to buy a company that made $20 million last year. The drag on earnings going forward is the problem. Netflix is squeezed between content owners who they have to buy content from, competitors who are largely giving away similar product (Hulu, Amazon Prime, over the air TV), and customers that are used only paying a modest monthly fee for the service.

 

[Icaras]

Apple will probably struggle going into the search business.

Search quality is based on data, and at this point, Google is so far ahead in the game that it is almost impossible to catch up.

I don't really want another repeat of the Maps fiasco. That generated so much bad publicity for Apple.

Apple just need to keep doing what they're good at, building great products that works and are fully integrated.

Unless of course they buy something like Yahoo.

Google has itself. Microsoft has Bing. And Apple?

 

[TheHateMachine]

Wondering what privacy you loss from google? Somebody get your address, phone number or friend list without your notice? tell us your story.

Hes just going to tell you how Google and Samsung ran over his dog with their self driving cars, how Samsung burnt his toast with their toaster and how the CEOs of Google and Samsung run around punching babies and burning down villages. All while stroking his aluminium tin foil hat with his aluminium phone. He might even say some derogatory thing about Koreans in general too!

EDIT: Oh wait he did already, shoot... For someone who sure hates and distrusts Google he sure uses a lot of their services.

 

[charlituna]

Apple needs to introduce something very quick in order to stop this continual slide of their stock.

No they don't. They need to only introduce things when they are ready to be introduce and not change that tactic to try to change their stock price.

What they need to do in regards to the stock price issue is to legally find a way to tell all these analysts to shut the F up. It is their spreading of nonsense rumors of products, product delays, sale projections pulled out of their lower orifice etc that is causing the issues. It's as if the collective wants to drive the price down so they can buy in cheap etc. Not cool and it needs to stop. No more 'unnamed sources' or 'people close to the matter' garbage. You want to publish something from a source you should have to name that source. That would out an end to much of the BS right there

 

[paul4339]

The flaw in this argument is the assumption that the company value ...

Obviously...you take the action when you think your company is undervalued... if you think it was overvalue, the more prudent course would be to buy cash with your shares (share issuance such as dilution, or using your shares to buy other assets).

.

 

[Small White Car]

Is that the best advice that the Wall Street parasites can come up with?
Thanks Warren.

If someone told me to come up with the most laughably wrong description of Warren Buffet I could think of, I'd say that 'Wall Street parasite" is about the best answer I could give.

Good job, you clearly have no idea what you're talking about.

 

[charlituna]

Good thing you are not in charge. Your answer is to "introduce something very quick."

Sounds a bit like buffet was playing the same with the whole 'buy something, advice.

Apple should only buy a company if there is real value like patents or gaining engineers that have sorted out an issue they have been working on. Not to pump the stock price

 

[TallManNY]

The flaw in this argument is the assumption that the company value is something different than the share price at that point in time, and that by buying back the stock the market cap will magically rise from the "discounted" value to the undiscounted value. ie, you have a company with a market cap of $360 bn that gives away $90bn and suddenly the market cap rises to $390 bn.

We never know what the intrinsic value of a company is because that is based on future events that we only guess at. But no the current stock price is not necessarily an accurate prediction. If it was, then stock prices would never change.

But what is not debatable is that when a company buys back its shares and then cancels them, the remaining shares have a proportionally greater claim to the company's assets and future cash flow.

If Apple were to reduce its shares outstanding by 20%, and then later have blow out quarters with huge profits, each remaining share would "own" 20% more of those profits, so therefor be more valuable. For example, Apple is trading at something like 6.5 time its "ex cap" earnings. If Apple did do a huge stock buy back, would the stock really continue to trade at those earnings? Of course we don't know. Einhorn predicts that it would not trade at price that low. I think Buffett was implying that he agrees with that analysis. Though Buffett was also saying "who cares, just make good stuff and the stock price will sort itself out."

This stock price move is a sideshow. It doesn't matter. What matters is how many iPhones and iPads Apple is selling. When that starts to drop, Apple is in trouble. But the last quarter was a monster hit. I have no reason to think that this quarter won't be fantastic as well.

 

[charlituna]

. On the other hand, they can use

their existing iTunes Store to develop unique content to drive hardware sales

 

[IJ Reilly]

The flaw in this argument is the assumption that the company value is something different than the share price at that point in time, and that by buying back the stock the market cap will magically rise from the "discounted" value to the undiscounted value. ie, you have a company with a market cap of $360 bn that gives away $90bn and suddenly the market cap rises to $390 bn.

The flaw in the argument is that stock buybacks don't alter market cap one penny. What they do at least in theory is raise EPS. The big problem with AAPL right now is that the market don't much care about Apple's earnings, so raising EPS could simply result in continued compression of PE and no net benefit to stockholders. Dividends are something that investors can take to the bank.

 

[charlituna]

Google knows the content of all of my emails.

because YOU CHOSE to have a gmail account.

They know what I search for on the Web. They know what videos I watch on YouTube.

Because YOU CHOSE to search using their site, view using their site. Particularly while logged into said gmail/google account.

Same with your calendar, your contacts. You chose to put them in Google's system.

 

[babyj]

Still reckon the obvious big money purchase for Apple is Nintendo. Currently at a 5 year low with a market cap of $14bn, they'd probably get it for no more than $20bn possibly even all in shares. Would be a good fit for both companies.

Plenty of money in the DS, Wii and Wii U still which they could milk over their remaining lifespan as they transition over to Apple platforms. License all the franchises to Disney for theme parks, movies, tv, merchandise and so on. Then make all the game franchises exclusive on Apple once the Nintendo hardware goes end of life.

Microsoft and Sony can't make a move for them at the moment, but they'll be fair game once they drop hardware. Move now and avoid the bidding war.

 

[gnasher729]

The flaw in this argument is the assumption that the company value is something different than the share price at that point in time, and that by buying back the stock the market cap will magically rise from the "discounted" value to the undiscounted value. ie, you have a company with a market cap of $360 bn that gives away $90bn and suddenly the market cap rises to $390 bn.

I think you didn't follow the maths at all.

There are two mostly unrelated numbers: Market caps and fundamental value. Market caps is found easily: Just multiply the number of shares by the price per share. Fundamental value is very, very difficult to find out. Very, very difficult for company insiders, and even more difficult for analysts and outsiders.

In a rational market, people try to estimate the fundamental value and the market caps will tend towards the _estimated_ fundamental value. In an irrational market, you have investors following share price trends - selling when the sky is falling, or buying according to the greater fool theory - that's when people say this stock is overvalued, you'd be a fool to buy it, but it is climbing and you hope to find a greater fool who buys your shares.

Back to the beginning: In my example the fundamental value falls by $90bn when the company buys back $90bn worth of shares (because $90bn just disappeared from the bank account). In a rational market, the share price is unaffected because all these share holders got paid exactly what the punters thought these shares were worth. With share price unchanged and 1/4th of the shares gone, market caps _drops_ by a quarter, from $360bn to $270bn.

However, _if_ the shares were worth $600 per share to start with, the imbalance between market caps and fundamental value is now bigger. The share price is still $450, but the fundamental value has gone up from $600 to $650. And in the long term, fundamental value wins. So anyone who believes that AAPL is worth more than the current share price indicates will be happy with a buyback because if they are right, then anyone giving up their shares makes a mistake that benefits those that stay in the game.

The flaw in the argument is that stock buybacks don't alter market cap one penny.

Of course it alters the market cap. Market cap goes down, because there are fewer shares. And it _should_ alter the market cap, because the company is worth less after giving the cash away.