Warren Buffett: If you're tracking Apple's iPhone sales you're doing it wrong

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  • Warren Buffett said on Thursday that Berkshire Hathaway bought 75 million shares of Apple in the first quarter.
  • That’s in addition to his year-end holdings of 165 million shares. His Apple stake is worth nearly $US44 billion at the current price.
  • He makes a convincing bull case for Apple.

Warren Buffett is a huge Apple shareholder. Plus, he’s adding 75 million shares to Berkshire Hathaway’s already substantial holdings of 165 million shares, he said on Thursday.

But for Apple investors and observers, his justification for buying so much Apple stock may be more interesting than his big purchase.

In an interview with CNBC, he laid out the bull case for Apple.

Basically – Buffett says that Apple makes a ton of money and you don’t need to worry about quarter-by-quarter iPhone sales, like many Wall Street analysts do in their research.

Here are his full comments:

It is an unbelievable company. If you look at Apple, I think it earns almost twice as much as the second most profitable company in the United States. It’s a wide, wide gap. It’s an amazing business.

Here’s a company that’s, whatever the earnings are, 60 billion, or whatever, and you can put all their products on a dining room table. That’s not the way it used to be in this country.

We don’t own it for the next quarter. it’s incredible to me, how you read the investor conference calls after reports, you read all the analyst reports and they talk about what it’s going to do next year.

Nobody buys a farm based on whether they think it’s going to rain next year or not. They buy it because they think it’s a good investment over 10 or 20 years.

The relevant question when you’re looking at buying part of a business, which you’re doing when you buy a stock is where it’s going to be in 10 or 20 years. It may be you don’t know, in which case you don’t have to do anything!

The idea that spending loads of time trying to guess how many iPhone X or whatever are going to be sold in a given 3-month period, to me, it totally misses the point. It’s like worrying about the number of BlackBerrys 10 years ago, what really counts is what’s going to happen over the next 10 years.

Negative sentiment on Wall Street

His comments were referring to a slew of headlines and investor notes before Apple earnings earlier this week that forecasted gloom and doom.

Here’s one from Business Insider: “Apple may have lost more than a third of its market share in China.”

Bloomberg, on April 30: “Apple Results to Show iPhone Growth Problem and Cook’s Plan to Fix It.”

Here’s the headline of a April 16 note from Goldman Sachs: “How bad is June and what does it mean for Apple?”

But when Apple reported earnings on Wednesday, it posted another impressive quarter: $US61 billion in revenue for Q2, up 16% year-over-year, and strong guidance for next quarter.

These headlines suggest their authors have a model of Apple that is “hits” based. Like a movie studio and blockbuster movies, many analysts parse numbers to guess how many iPhones were sold in any given quarter – was the new one a hit or not?

It’s a defensible stance, considering that the iPhone contributes about 70% of Apple’s overall revenue. But since iPhone sales are not recurring, much of the modelling consists of guessing how long people will hold onto theirs before getting a new one.

But Buffett and Berkshire Hathaway are big “value investors” – that is, they look for companies that are undervalued based on underlying principles and long-term strategy, then it holds the shares for a long time.

Based on that, he’s seeing a company that just raised its dividend, has always has a forward price-to-earnings ratio that lags behind its technology peers, and sells the top four best-selling smartphones in the world.

Basically – it really doesn’t look like Apple will be collapsing like BlackBerry did over the past decade.

In that light, it doesn’t really matter if Apple sold 53 million iPhones, as the Street predicted, or if it sold 52.2 million, as it reported on Tuesday.

And that’s what Buffett meant when he said analysts “totally miss the point.”

So far, at least one important person is applauding Buffet. Apple CEO Tim Cook told CNBC “We are thrilled to have Warren and Berkshire as a major investor. On a personal level, I’ve always greatly admired Warren and have always been grateful for his insight and advice.”

Watch the entire interview below. The Apple discussion starts at 5:00:

Watch CNBC’s full interview with Warren Buffett from CNBC.

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