Investing Like Warren Buffett: What You Can Learn From A Billionaire’s Apple Bet – Apple (NASDAQ:AAPL)

The stock market has recovered nicely this year, although there are many uncertainties and risks that question the sustainability of the uptrend.
Against this backdrop, Doug Clinton, the managing partner Deep water asset managementdelved into what it would take to generate great returns.

What happened: “Big returns come from consistently buying assets at what turn out to be cheap prices,” Clinton said. Instead of calling the bottom, an investor should take the time to identify donkeys that turn out to be cheap in hindsight, he added.

Also see: How to survive a stock market crash

In other words, this is value investing – a strategy that is central to billionaire investors Warren Buffett‘s investment thesis. Clinton took Buffett’s bet Apple inc. AAPL as a case study to support his view.

Buffett’s apple bite: The “Oracle of OmahaInvested in Apple for the first time in mid-2016 when the stock fell more than 25%, Clinton noted. The weakness was due to a setback iPhone 6S upgrade cycle and the steep decline in sales of “S” cycles in China, he said.

The weakness proved irresistible to Buffett, who took stock of the company’s more than $150 billion in net cash, buyback commitment and robust free cash flow yield, he added.

“Free Cash Flow Yield + Growth Rate = Return”, is the equation used by investment greats including Buffett, Charlie Munger And Glen Greenberg, noted Clinton. They targeted companies with a free cash flow yield + growth rate equal to 20% or move, he added.

Buffett saw the problems Apple faced in 2016 as transient, knowing that people would continue to use iPhones even if that means upgrading less often and Cupertino will continue to generate strong free cash flow that will double digits even in the bear market. would grow. case scenario, Clinton said.

As Buffett predicted, Apple’s shares have risen about four times from the levels Buffett bought in just six years, Clinton added.

Buffett’s rich appetite: As Buffett expected, Apple’s iPhone sales grew out of the slack of 2016 and service revenues began to make up a significant portion of the total, Clinton said. The stock also received support from growing market multiples for all major tech companies, he added.

In addition, since 2016, Apple has returned about $490 billion in the form of dividends and buybacks, nearly equal to its $550 billion market cap in 2016, he noted.

“It’s hard to see a losing scenario when a company returns cash equivalent to its market cap in the short term and maintains a strong running business even after that. Don’t miss that,” Clinton said.

Being paid back in a public investment doesn’t necessarily mean a return of capital, like Apple does, but it could be that the company eventually generates free cash flow equal to its market cap at the time of purchase, the analyst said.

Read next: Warren Buffett Says In 58 Years Running Berkshire, His Decisions ‘No Better Than So-So’: Here’s His ‘Secret Sauce’

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