They actually did not buy any AAPL stock. Rather it came from Allegheny's (company they acquired recently) portfolio which they liquidated aside from AAPL. - Berkshire nerd.
Yes because the company the acquired may have purchased the stock at a price that fit with Berkshire’s previous purchase prices based on their own internal financial assessments.
The price at which the stock was purchased shouldn't really affect decisions about the portfolio, should it?
As I understand it, from the perspective of a rational investor, inheriting a stock and not selling it is the same as inheriting the equivalent amount of money and buying that stock.
Selling the stock means capital gains tax. In addition to buying the business presumably for its own intrinsic reasons Berkshire may want to increase its position in Apple with a long term price target of say, idk, $500/share within 10 years (just making something up here) and getting the stock at $50/share versus $150 on the open market may have made sense to them.
If the stock would have otherwise been sold off like the others, then it's not really different because the price is higher now than it would have been.
E.g. Allegheny selling AAPL + Berkshire buying AAPL == Berkshire buying Allegheny
(Assuming a perfect market, which isn't the case but I don't feel qualified to say what the other effects would be)
Part of it is: If you wouldn't buy a stock at the current price, why wouldn't you sell the stock at the current price? Shouldn't the band where you do neither be very narrow?
But the bigger part is: Why do you care what someone else paid? All that should matter is what you are paying for this acquisition, especially if you're only keeping the AAPL.
> If you wouldn't buy a stock at the current price, why wouldn't you sell the stock at the current price?
Taxes, portfolio position, longer-term price horizons, etc. Many business factors could potentially be at play. Why pay $150/share on the open market today for something you want to hold if you can get it for much cheaper?
The fact that they added to that position though demonstrates that the considerations are not just today's price.
> Why pay $150/share on the open market today for something you want to hold if you can get it for much cheaper?
Did they pay much cheaper? If so, why wasn't someone else bidding up Allegheny?
But that still doesn't explain why you wouldn't sell if you think it's worth significantly less than $150. Even if you only paid $2! But if you think it's close to $150 then the other factors make sense.
Either way, I don't see how it matters what Allegheny paid for the stock.
Berkshire is not unique in its ability to buy what you call "distressed" companies. The companies it buys are not usually distressed, but just undervalued by rest of the market. It's entrance into tech is fairly recent.
Overall strategy is simple to state but hard to execute over time consistently: 1) Actually read financial reports. Buy what you truly understand.
2) Don't buy stuff during bubbles or when overvalued (which is a lot of the time) and be happy with just sitting on your accumulated reserves,
3) Buy when you spot companies/stock that is undervalued relative to the market
4) Mostly HOLD forever.
The reason tech came relatively late is it failed Rule #1 of "buy what you understand", and vast majority of the time it fails Rule #2.
What not to do: Time Warner-AOL merger was worth $350 Billion. In 2015, Time Warner got sold for $78 billion.
They have many. In a lot of cases the original creator of the company stays on to run it, which would be extremely weird if they were forced into the situation. Why would you force someone into a bad situation and then let them run your newly bought company? It's like kicking them in the knee and then handing them a knife. Why would they take up the offer, except if they thought it was net positive for them? Why do many continue to run the business for many years, rather than cashing out and running?
If you have a distressed company, that's not his fault. You create the situation, he merely offers you one of 100 options, you can choose that one or absolutely any other from the other people knocking on your door, who would presumably pay a premium for the company Buffett has just said is worth the money by virtue of having offered you a price.
Shortly after I joined a company it was acquired by Birkshire. I witnessed how they transformed operations and streamlined processes and trained/equipped employees. I was quite taken back by how good they were at their job and that's when I realized the value of good management. They were very customer oriented and wanted to make employees happy. I was in the Real Estate industry, my biggest complaint was how they bought out brokers, title, insurance and mortgage companies and they would engage in an incestuous relationships that IMO broke the fiduciary duty that a broker has with a client.
As a gigantic insurance company, a lot of the money they invest is not money they own, but insurance premiums that have not been paid out as claims yet. I think this has some favorable tax implications for them.