To The Moon

Today, I am more curious about what value Apple has given to BRK that made Buffett keep buying it, to the point where 40% of his investment portfolio is composed of Apple stocks. Let's not discuss why Buffett spent 4.1 billion buying TSMC in Q3, but then decided to withdraw 3.8 billion in Q4 (earning a profit of more than 8 million).

In 2016 Q1, Buffett bought Apple for the first time: at that time, Apple had 22.18 billion shares outstanding, and today it has 15.82 billion shares, with nearly 28% of the shares bought back over the past seven years. Therefore, even if Apple's EPS has not grown (revenue has not grown) for seven years, the eliminated 28% of the shares can make the remaining shares' EPS grow by 39% per share (1/0.72=1.39). Just eliminating 28% of the shares through the buyback program can increase the stock price by 39% based on mathematical logic.

Not to mention that over the past seven years, Apple's revenue has grown from TTM 227.53 billion at that time to TTM 387.54 billion today (a growth rate of 70%)! EPS has also grown from TTM 2.25 to TTM 5.89 today (a growth rate of 162%). Apple has done well in its business and cost optimization, and the share buyback program is the third engine that drives up the stock price.

TSMC lacks this third engine, even though its revenue has grown at a rate of 195% over the past seven years (TTM 25.69B->75.89B), and its EPS has grown at a rate of 277% (TTM1.73->6.55). The number of shares outstanding is still 5.186 billion, the same as seven years ago. It is worth considering whether TSMC's lack of a buyback program will affect its stock price growth in the long run.

Apple has bought back 28% of its stock over the past 7 years, while TSMC has not. The reason for this is that TSMC's Cash from Operations growth rate is far lower than Apple's, even though TSMC has better revenue and EPS growth. However, the quality of TSMC's earnings is far inferior to Apple's. Apple's Cash from Operations growth rate over the past 7 years has exceeded TSMC's by more than four times.

The quality of earnings is of higher importance. Whoever has more Cash from Operations included in their earnings per share is more valuable.

Cash from Operations can be used for stock buybacks, dividends, capital expenditures for reinvestment, mergers and acquisitions, and debt repayment. Although TSMC spends $9 billion on dividends to shareholders every year, Apple also spends $14 billion on dividends to shareholders every year! In addition, Apple buys back a large amount of stock to create even more astonishing shareholder value!

Purchasing stocks that can grow steadily and create shareholder value has always been Warren Buffett's top priority.

What about the future? Will Apple continue to buy back stocks to bring compounded value to shareholders? "Maintain our goal of becoming net cash-neutral over time" has always been Apple's goal. For many years, Apple's stock buyback amount has accounted for at least 50% of its Cash from Operations. As long as Apple continues to generate growing cash flow and continues to use the excess cash flow to buy back stock, the power of value creation for shareholders will automatically double over time. By the way, investing in Apple's Berkshire Hathaway has created triple value: since 2018, Buffett has been using the company's Cash from Operations to buy back its own stock. At its peak in 2021, he spent 70% of the company's Cash from Operations to buy back BRK stock.

BRK.B has always been a stock that Hedge funds add to their portfolio and never reduce, and it is also one of the best targets for investment in growth stocks during market turbulence. Many investors who only play growth stocks may not see the growth potential of Buffett's Berkshire Hathaway. However, if there is a target that can continuously create compounded value over time and can completely ignore market fluctuations, why not put your retirement funds in BRK.B?

$Berkshire Hathaway(BRK.B)$ 

$Apple(AAPL)$ 

$Taiwan Semiconductor Manufacturing(TSM)$ 

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