"Buffett's $130B Gain from Apple's Stock Buybacks"

When Buffett bought Apple, the company's sales were declining that year, and the price-to-earnings ratio was just over 10 times. He said at the time that the reason for buying Apple was: "You can put ...

When Buffett bought Apple, the company's sales were declining that year, and the price-to-earnings ratio was just over 10 times. He said at the time that the reason for buying Apple was: "You can put all their products on the dining table and study them carefully. No one buys a farm considering whether it will rain next year; they buy it because they believe it will be a good investment over the next 10 or 20 years."

Buffett's vision was indeed excellent. Later, Apple's profits increased year by year, and the company successively used a huge amount of $662 billion to repurchase its own shares. This huge sum was used to repurchase shares, thereby reducing the circulation of shares outside, and the growth in performance led to a continuous rise in stock prices.

In the past ten years, Apple has only distributed $120 billion in dividends, while the funds for share buybacks amount to $572 billion. Not long ago, the board of directors also agreed to a $9 billion share repurchase. The funds Apple used for share buybacks are far greater than the funds for dividends.

Apple repurchased and retired 50% of the shares in circulation, which greatly reduced the pressure of selling. The rise in Apple's stock price indicates that the market still prefers buybacks.

To increase the liquidity of shares, Apple split its stock on a 1:4 basis in 2020. After the stock split, the price of Apple's stock was lower, and trading also became more active. Due to Apple's good growth prospects, the fill-in effect after the stock split was obvious.

The top ten shareholders of Apple are all world-class institutional investors who hold high-quality growth stocks for the long term. Although they also like cash dividends, they care more about the slow rise in the value of their stock holdings.

Buffett started buying and building a position in Apple in the first quarter of 2016, and by 2018, the cost of purchase was $36 billion. At that time, Apple's market value was $500 billion. Now Apple's market value is $3 trillion, having increased fivefold in seven years.

Buffett's heavy investment in Apple is mainly due to the company's moat. Over the past ten years, Apple's average annual ROE has been 30%. Apple has made Buffett a profit of $130 billion in seven years.

Apple's net profits in the last five years were $55.256 billion, $57.411 billion, $94.68 billion, $99.803 billion, and $96.995 billion. The charm of share buybacks and retirements lies in this. If Apple's $620 billion were used for dividends, could the company's stock price rise fivefold? This is obviously impossible.

A-shares are also starting to pay attention to buybacks, but most buybacks are not retired. For example, Gree Electric Appliances offers shares to employees at half price, but many employees still do not buy Gree's shares because they can only sell them after retirement.Stock buybacks without cancellation, half-price rewards for employees, and some companies even repurchase stocks as inventory, like Midea Group that aims for high selling and low buying. How can such stock buybacks boost the stock price?

The above is merely my personal opinion and should not be taken as investment advice. Any actions taken based on this are at your own risk, and profits or losses are your own responsibility.