At the risk of appearing naive, and an ingenue, can someone explain to me why the World’s greatest investor is so heavily invested in Apple, when the book price is around 6c but the real price is around 135c?
I’m sure Book Price isn’t Everything, but it sure as hell is Something.
Thanks
D
A grizzled veteran of the NHS
Buffet loves toll booth businesses and Apple is a toll booth on the connected world with a powerful network effect uniting consumers and suppliers - via the App Store, Apple Music and TV, search, advertising etc. It also sells hardware at huge margins and Buffet distrusts pure software companies so this is a more comfortable way for him to get exposure to technology.
Apple’s tangible book value is irrelevant since its whole value lies in intangibles such as its monumental brand equity, the stickiness of its products, the aforementioned network effect and a vast array of intellectual property. That’s a lot of moat!
This is because accounting principles do not fully recognise the true value of intangtible assets such as brands, patents, R&D expenditure, know how etc. Whereas the market value of the company does take these factors into account. For fast growing companies such as Google or Microsoft it is the intangible assets of the company which are more important factors in the future growth of the company.
