So… I guess you’re telling me it’s over.
Alice Schroeder’s opus The Snowball recalls a story about Benjamin Graham, Warren Buffett’s teacher and mentor. The year was 1956, and Ed Anderson–a chemist who liked to coattail Graham’s investments–walks into the Graham-Newman office.
“Anderson had come in because he was thinking about buying another share of Graham-Newman, but he had noticed an oddity and he wanted to ask about it. Graham had loaded up on shares of American Telephone & Telegraph. It was the least Graham-like stock imaginable–owned, studied and followed by all, valued fairly, with as little potential as it had risk. Was something going on? he asked Warren…
From watching the firm’s trading patterns and keeping his ears open, [Warren] had already figured out that Graham was going to shut down his partnership.” 
Fast forward to 1968… After a epic run managing the Buffett investment partnerships (a “1 in 1 billion event”), the last chapter of that story eerily finds Buffett also purchasing shares of “the blandest, most popular stocks that remained reasonably priced: $18 million of AT&T…” 
Of course, the clearest analogue to yesteryear’s AT&T has to be today’s champion and market behemoth–Apple. To note on this day that Buffett has loaded up on 40 million shares of $AAPL leaves this investor with a sense of foreboding…
If the pattern is to repeat, I guess something has now reached an end.
Disclosure: As of today, I am long Berkshire Hathaway shares and short call spreads in Apple.
From what I make of things, Apple has a very strong moat in the form of cash (+ long-term and short-term marketable securities) as well as a great brand. It is also pursuing a dividend program and a share buyback program to add shareholder value.
Although I would expect it to be out of Buffett’s circle of competence perhaps he is considering it as a consumer brand as opposed to a tech company (I am assuming the increase in position was Buffett and not another portfolio manager).
Would you please explain why you are bearish on Apple? Thanks.
I’m not particularly bearish on Apple. With the general market at these levels, I do feel compelled to be short a few things. Additionally, the 30 day implied volatility in Apple’s options are nearly twice that of the S&P 500, so that makes it much more attractive if you want to be short via options.
There is another story in ‘The Snowball’ about Warren and AT&T. “When his teachers told him they had most of their retirement savings in AT&T stock, he shorted it, then showed them the trade tickets to give them heartburn. ‘I was a pain in the ass,’ [Warren said].” (97)
So perhaps an Apple short is merely vanity doing its work.
Great post. Please post more!