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Published 05 March 2013 06:50, Updated 06 March 2013 10:48
Warren Buffett says Apple should ignore the demands of billionaire hedge fund manager and preferred stock agitator David Einhorn. Photo: Reuters
Add Warren Buffett to the burgeoning list of high-profile investors weighing in on what Apple should do with its mountain of cash.
The Oracle of Omaha has told CNBC’s Squawk Box that he once talked to Apple founder Steve Jobs about how the company should spend its bread.
“I don’t own any Apple and I haven’t, though I did talk with Steve Jobs a few years ago about what they might do with the cash,” Buffett says.
“When Steve called me, I said, ‘Is your stock cheap?’ He said, ‘yes.’ I said, ‘Do you have more cash than you need?’ He said, ‘A little.’ I said, ‘Then buy back your stock.’ He didn’t. Now, when our stock went from $US90,000 to $US40,000 to $US45,000, I wrote about, we wanted to buy the stock. We didn’t quite manage to.
“But if you could buy dollar bills for US80¢, it’s a very good thing to do.”
Buffett’s comments came in the context of hedge fund manager David Einhorn’s push to get Apple to issue preferred shares to deal with its “cash problem”, which led the billionaire agitator to lob a lawsuit Apple’s way in February.
So what would Warren do?
“I would ignore him [Einhorn]. I would run the business in such a manner as to create the most value over the next five to 10 years,” the Oracle says.
“You can’t run a business to push the stock price up on a daily basis. Berkshire has gone down 50 per cent four times in its history. When that happens, if you’ve got money, you buy it. You just keep working on building the value.”
This shouldn’t come as a surprise given Buffett’s explanation of why Berkshire Hathaway doesn’t pay dividends, in his annual letter to shareholders over the weekend.
The background to this conversation isn’t just Apple’s voluminous pile of money, it’s the precipitous fall in the gadget-maker’s stock, which has its shares trading at around $US430 versus a 52-week high of $US705.07, hit less than six months ago.
The fall has led to many questions about whether or not Apple’s glorious ride has come to an end under new chief Tim Cook, with pundits everywhere sheeting blame for the decline more or less back to the company.
But hedge fund manager Mark Dow has cast a slightly different light on the debate, tweeting a Bloomberg screenshot that compares the share price performance of goldminers with Apple over the past year. There’s a close correlation.
“Not saying that $GDX and $AAPL are similar behavioural phenomena . . . well, actually, I am,” Dow tweets.
Say Business Insider’s Joe Weisenthal and Matthew Boesler of Dow’s observation: “But with the sun rising, and the crisis panic fading, markets have become less correlated. And suddenly there’s less demand for a unique asset that’s shown itself to be untethered from everything else.
“So just as there’s less need for gold in a world where there’s more optimism and less panic, so too is there less need to own Apple.”
But if Bloomberg’s right about Apple’s supposed next hot product, questions about Cook’s stewardship of the gadget-maker may ease a little. The news service cites Citigroup analyst Oliver Chen, who covers luxury goods retailers, as giving rather a bullish view of what an iWatch may do for Apple’s profits, should rumours of the product prove correct.
Under the headline “Apple’s planned ‘iWatch’ could be more profitable than TV”, Bloomberg quotes Chen as saying, “This can be a $US6 billion opportunity for Apple, with plenty of upside if they create something totally new like they did with the iPod – something consumers didn’t even know they needed.”
Bloomberg then runs the numbers for both the watch market and the TV market, noting that watch sales are four times bigger than TV sales, to conclude, “Using Chen’s estimate of a 10 per cent share for Apple in each market would mean gross profit of $US3.6 billion for watches, outstripping $US1.79 billion for TVs.”