A Buffett’s day

Per the latest disclosure, Berkshire Hathaway bought millions of Apple shares worth $10 Billion following the Apple stock nosedive by 9% on Jan 3, CNBC reported today (Jan 5). Where have I seen the news, you may ask as no one probably has seen it? Well, don’t try to look for it as it is indeed fake news fabricated by me!  😛😎

Of course, there's no sugarcoating it. AAPL shares were down about 10% following a rare earnings warning from CEO Tim Cook. How rare? The last one was issued by Steve Jobs – in 2002. The Apple stock price is now down about 40% from its all-time high of $233.47 reached on Oct. 3. The steep decline has Apple investors worried for sure. The culprit? The weak sales in China due to worsening economy there and the continuing unresolving trade tension between US and China is a major factor. We have heard similar warning from FedEx just a few weeks ago when it also reported disappointed earnings that haircut its share price by 12% in one day again due to softening economy prospects. FedEx is operating in over 200 countries and reported "significant weakness in business conditions," particularly in Europe, and reduced guidance for the second half of fiscal 2019. And we start to hear more and more such kind of warnings from other companies. The trade conflict with China and hawkish Fed tone for further hiking rates are the two major headwinds that have made the market knee-jerking. But as I have said, the exact these two headwinds may very well be turned around to be the tailwinds for the market down the road. You can read my reasoning here but in a nutshell, the actual negative impact seen by more and more businesses due to the trade tension will put more pressure for both sides to make a concrete deal sooner rather than later. The universal softening economy in the world will make it less and less likely for the Fed to increase the rates. The huge rally yesterday was the first taste you can take to see how the market will respond to the more dovish Fed, if it continues to behavior as such, which I do believe it will!

Now back to Apple. It is certainly very painful to see a holding stock crashed by 40% in such a short period of time but for value investors for long term, you really should not feel that way. There are no fundamental issues with Apple and it is still doing great as a cash cow.  Per Cook, Apple will be reporting a new all-time record for earnings per share with great gross margins at about 40%. Despite the issues in China, record revenues are expected in many other countries, including the United States, Germany, Korea, Mexico, and Malaysia. Non-iPhone revenue grew almost 19% year over year, as Cook said, with wearables (the Apple Watch and AirPods) growing by an impressive 50%. And more importantly, Apple is transitioning from a hardware business to a services business, which means setback in quarterly iPhone sales will matter less and less in years to come, as services becomes the more meaningful source of revenue. You can see more data here in my recent blog.
So for value investors, the sky is not in fact falling for Apple…People are worried that Cook is not as visionary as Jobs in terms of innovation and that why it may not be a high flying growth stock as it is used to be. This is a legitimate concern as I also think Cook is the best COO, not the best CEO in terms of innovations. The current snafu actually reminds me of Ballmer time for Microsoft. No innovation whatsoever and MSFT was kept in $20-30s for a decade, a dead money period for many. But during his tenure, MSFT has increased its revenues tremendously with consistently improving margins. And it had increased its dividends in an annual rate 15-20%. So it was a dreamland period for value investors, especially those with dividend reinvestment. Then BOOM, it was suddenly exploding after a new visionary CEO came on board. So my earlier days of MSFT shares bought at $30s (either via active buying or via DRIP) are paying me about 10% dividends nowadays. That's why I keep saying, don't sweat for lower stock prices for good dividend stocks. You should feel happy as lower stock prices will allow you to buy more shares (and automatically if via DRIP). The increased number of shares (not stock prices) will likely make you much richer over a long period of time (see here why)!


Make no mistake thinking that I meant Apple has already reached its absolute bottom in this round of correction. It could be but not necessarily so. Technically it has been damaged badly and will require time to recover. During the course, it may still be very volatile and may even go down to find its next support around $130ish. For for long term value investors, it is not the price they are buying but the valuation. Apple may not be at the exact lowest price they may pay now but certainly they are buying a good value at the moment.This is how I'm looking at Apple right now from a long term investment perspective! And also I believe we will soon see the report that Buffett is doing just as I fabricated: buying more Apple shares when it tanked!