How and Why Warren Buffett First Bought Apple Stock for 20 bucks ( now over 220 )

this is Warren Buffett and Charlie Munger from their 2017 brickshire hathway annual meeting this is when they started buying Apple stock and they will cover some of the reasoning of why they did it and this video is meant to serve as kind of like a refresher course to remind myself and others of what they look for in their Investments and this video can be replayed every once in a while to refer refesh that after the footage from the shareholder meeting I will have some analysis on C's candy and Apple stock so stay tuned for that as well in your career of thousands of negotiations and business dealings could you describe for the crowd which one sticks out in your mind as your favorite or as otherwise noteworthy well I don't think I've got a favorite but the one that probably did us the most good is a learning experience with Seas candy it just the power of the brand uh the unending flow of ever increasing money with no work sounds nice it it was and I'm not sure we would have bought the Coca-Cola if we hadn't bought the Seas I think that a life properly lived is a it's just learn learn learn all the time and I I think birchers gained enormously from these investment Decisions by learning through a long long period every time you appoint a new person that's never had big Capital allocation experience it's like rolling the dice and I think we're way better off having done it so long and and but the decisions blend and the one feature that comes through is the continuous learning if we had not kept learning you wouldn't even be here you'd be alive probably but not here there's nothing like the pain of being in a lousy business to make you appreciate a good one well there's nothing like getting into a really good one that's a very pleasant experience and it's a learning experience I have have a friend who says the first rule of fishing is to fish where the fish are and the second rule of fishing is to never forget the first rule and and we've gotten good at fishing where the fish are yeah that's only metaphorically I went to fish with Charlie there too many other boats in the damn water but but the fish are still there then you seem to change your view about technology when you invested in IB M and again when you recently invested in apple but then on Friday you said IBM had not met your expectations and sold a third of our Stak do you view IBM and apple differently well I do view them differently but you know obviously when I bought the IBM started buying it 6 years ago I thought it would do better in the six years that have elapsed than uh it has and uh Apple i i i regard them as being quite different business I I think apple is much more of a consumer products business in terms of the in in in terms of sort of analyzing uh modes around it and consumer behavior and all that sort of things it's obviously a a product with all kinds of tech bill into it but in terms of laying out what their perspective customers will do in the future as opposed to say an IBM customers it's it's a different sort of analysis that doesn't mean it's correct and we'll find out over time but they are two different types of decisions and and and uh I was wrong on the first one and we'll find out whether I'm right or wrong on this on the second but I don't I do not regard them as uh apples and apples and I don't quite regard them as apples and oranges but they it's somewhat in between on that Charlie well we avoided did the tech do because we felt we had no Advantage there and other people did and I think that's a good idea not to play where the other people are better but you know if you asked me in retrospect what was our worst mistake in the tech field I think we were smart enough to figure out Google Those ads worked so much better in the early days than anything else so I would say that that we failed you there and we were smart enough to do it and didn't do it we do that all the time too yeah we were their customer very early on with with Geico for example and we saw I don't these figures a way out of date but I as I remember you know we were paying them $10 or $11 a click or something like that and anytime you're paying somebody 10 or 11 bucks every time somebody just punches a little thing where you got no cost at all uh you know that's a good business unless somebody's going to take it away from you and uh so we were close up uh seeing the impact of that and incidentally if any of you don't have anything to do in your hotel rooms tonight just just keep punching Progressive or something and don't really do that the thought just happened across my mind but you know that is you know you've never seen a business almost never seen a business like it where and and I think for lasc surgery and things like that I I think I think the Figures were you know 60 or 70 bucks a click with no incremental no cost so and I knew the guys I mean they actually designed their perspectives they came to see me and they a little bit after the original one when they went public a little bit after birkshire even and so I I had plenty of ways to ask questions or anything of the sort and educate myself but but I blew it and uh we blew we blew Walmart too when when it was a total CCH we were smart enough to figure that out and we didn't yeah yeah figuring out execution is what counts D youve said smartphones are too smart for you you don't have a computer at your desk and you've only tweeted nine times in the last four years it was either that or going to a monastery despite this you recently been investing looking and talking more about tech companies my question to you and also to Charlie to comment is what turned you from the Oracle of Omaha to the tech Maven of Omaha well I I don't think I would U I don't think I've talked that much about tech companies but the truth is we made a large investment in IB I made a large investment in IBM and which has not turned out that well we haven't lost money uh but in terms of the bull market we've been in it's been a significant lager uh and then uh fairly recently we we took a large position in apple which I do regard as more a consumer goods company in terms of certain economic characteristics although that it you know it has a huge Tech component in terms of what that product can do or what other people might come along to do to Leap Frog it in some way but I I U I think I'll I think I'll end up being no guarantees but I think I'll end up being one for two instead of 0 for two but we'll find out Charlie I I I make no pretense whatsoever of of being on the intellectual level of some 15-year-old that's got an interest in Tech I think I may know have some insights into consumer Behavior I've certainly uh can get a lot of information on consumer behavior and then try to draw inferences about what that means about what consumer behavior is likely to be in the future uh but we will find with the one the other thing I'll guarantee is I'll make some mistakes on marketable Securities and I I made them in other areas than uh than Tech uh so you you'll not b a thousand you know no matter what industries you you sck you you try to stick with I know Insurance pretty well but I think we probably lost money on an insurance stock perhaps you know once or twice over the years so it it uh you don't bet a thousand but I have gained no real knowledge about tech in the last well since I was born actually Charlie I think it's a very good sign that you bought the Apple it shows either one of two things either you've gone crazy or you're learning I prefer the I prefer the learning explanation well so do I actually one of the best investments Brookshire ever made was in se's candy in 1972 they ended up paying 25 million for Seas candy and Warren Buffett talks about how they thought they were overpaying because they were used to buying cigar butt really cheap companies that were trading far below tangible Book value something like 25 to 50% tangible Book value or or for the working capital is how what they were looking for for C candy they had to pay up something like three times the tangible Book value and that's how they got to 25 million but the earnings yield is roughly about 8% because the earnings was 4 million before tax and after tax it was two so that's roughly 8 8% earnings yield after tax earnings yield uh the PE down below we see it's about 12 this is the perfect example of the strategy that they started doing after SE candy buying High earnings yield 891 and then making sure that the company was so good that they they were generating lots of cash and they would notice that because they would have cash on the balance sheet and low debt so they initially paid 25 million to buy all of se's candy and to date they've taken in over $ 1.35 billion in aggregate profits that's not calculating the value of the business now that's just the pure cash flow from C's candies birkshire and Warren Buffett started buying Apple in 2016 and today the stock is worth over $220 that's almost 1,000% or 10x but amazingly when you look back at the financials the fundamentals you'll notice a pattern was very similar to C's candy and I'm going to show you here on this chart so on trading view you can look at something an indicator called earnings yield and if we look back in 2016 the earnings yield was as high as 10 almost 11% so that would make this an attractive value investment just like C's candy back in 1972 now they eventually started adding more positions I believe they had something like 89 million shares initially and they ended up with 80 90 million and they made another big purchase back in 2018 and again this was an 8% earnings yield even though the stock was at a higher price from 20s something to 40s something because Apple's earnings kept growing the earnings yield reflected that the higher price but also higher earnings made it a still an 8% earnings yield it had gone up to 53 and then dropped and that was the opportunity to buy more shares so earnings yield very useful to start sniffing out good purchasing opportunities in in companies with strong Brands like the ones Warren Buffett looks for so now that Warren Buffett is selling a half of his stake taking half of his profits if we look at the same indicator earnings yield earnings yield right now is only 3% so now is a great time for Warren Buffett to take profits remember he was buying in the 20s and 40s now it's at 220 if he takes some profits he just gets a bunch of cash he reduces his risk and essentially he gets whatever he has left is now just free free stock for all profit