Warren Buffett is one of the richest people in the world, one of the world’s shrewdest, hardest working investors. He does his homework before he spends a dime.
As has been widely reported, Buffett more than doubled his ownership in Apple stock (was 59M shares on Dec 31, now up to 133M shares) so far this year. In yesterday’s interview with CNBC, Buffett lays out his logic. Compelling.
You can watch part of his more than three hour interview here.
From the official transcript:
When I take my great-grandchildren to Dairy Queen they bring along friends sometimes. They’ve all got a iPhone and, you know, I ask ’em what they do with it and how … whether they could live without it, and when they trade it in what they’re gonna do with it. And of course, I see when they come to the furniture mart that people have this incredible stickiness of — with the product. I mean, if they bring in an iPhone, they buy a new iPhone. I mean, they’re … it just has that quality. It gets built into their lives. Now, that doesn’t mean something can’t come along that will disrupt it. But the continuity of the product is huge, and the degree to which their lives center around it is huge. And it’s a pretty nice, it’s a pretty nice franchise to have with a consumer product.
And:
what I do know is when I take a dozen kids, as I do on Sundays out to Dairy Queen they’re all holding their Apple, they barely can talk to me except if I’m ordering ice cream or something like that. And then I ask ’em how they live their lives. And the stickiness really is something. I mean, they do build their lives around it, just like you were describing. And the interesting thing is, when they come into … when they come into get a new one, they’re gonna get they overwhelmingly get the same product. I mean, they got their photos on it and, I mean, yeah, I know you can … you can make some shifts and all that. But they love it.
And:
Apple strikes me as having quite a sticky product and enormously useful product that people would use, and not that I do. Tim Cook’s always kidding me about that. But it’s a decision-based … but again, it gets down to the future earning power of Apple when you get right down to it. And I think Tim has done a terrific job, I think he’s been very intelligent about capital deployment. And I don’t know what goes on inside their research labs or anything of the sort. I do know what goes on in their customers’ minds because I spend a lot of time talking to ’em.
Obviously, Buffett doesn’t base his buying decisions on anecdotal evidence. But I feel certain that observations like this trigger some switch that makes him dig deep into the financials. And clearly, Buffett likes what he found.