In Berkshire Hathaway’s 1982 letter to shareholders, Warren Buffett described the types of businesses he was interested in purchasing. One of the six characteristics he listed was the business had to be simple and understandable. If the company involved technology, he said, he wouldn’t be able to understand it. If he couldn’t understand it, he wouldn’t invest in it.
Scanning through his 2021 letter, we find an investment in Apple Inc. Over the last five or six years, Buffett has bought nearly a billion shares in Apple, a company known for its high-tech gizmos. His investment in Apple has a cost basis of $31 billion and a market value (as of December 31, 2021) of $161 billion. Buffett made $130 billion on a single investment.
Apple is the single largest investment in Buffett’s 70+ years of investing, both on a cost basis and especially on a market value basis. The market value of Berkshire’s Apple holdings now represents about 25% of Berkshire’s entire market capitalization.
Buffett had an aversion to technology early in his investing career, yet his signature investment late in his investing career is the mother of all technology companies.
In A Little Closer to Perfect, we described how elite business leaders love to iterate, refine, and improve. There is no better example than Warren Buffett. He created an investing framework very early in his investing career. He then set to work refining and improving it.
Buffett’s early aversion to technology and his subsequent investment in Apple looks at first like an inconsistency in his investment discipline. We think it is more of an evolution. It is forty years of learning, refining, and improving. It is forty years of Buffett constantly thinking of how to get better as an investor. Buffett has been on a lifelong mission to up his game and get a little closer to perfect.
We do not believe Buffett understands technology any more than he did when he wrote those words in 1982. Buffett’s understanding of technology is not the element that improved over the years. He has no idea how an iPhone actually works.
Buffett upped his game in other ways. He got better assessing people for one. Whatever model he has for assessing the people running the companies he invests in has gotten progressively better, in our view. Tim Cook and his management team ascended to the top of that model: Buffett has praised Tim Cook publicly many times.
Buffett also better appreciates franchise value and competitive advantage. He has gotten way better spotting it before the rest of us do. He commented once that people grope for their iPhone in the same way smokers reach for their pack of cigarettes. Addicted customers are good for business value. Buffett pays attention to this stuff.
It is unlikely Buffett would have pulled the trigger on his Apple investment had he been using his 1982 investment framework, in our view. He got better in certain areas from years of refining, iterating, and tinkering. By the time he came around to assessing an investment in Apple, his ability to assess people and franchise value gave him the conviction to make the investment, despite the highly technical nature of Apple’s products.
Elite leaders in all professions have this drive for perfection. We saw it in Ben Franklin. We saw it in Steve Jobs. We saw it in John Wooden. We saw it in John Lennon, Sam Walton, and George Washington. Here we see it in Warren Buffett. Each of these elite leaders were committed to a lifetime of self-improvement. Buffett’s commitment to self-improvement and getting a little closer to perfect is what ultimately led to Berkshire’s $130 billion gain in Apple stock.
Aligning with one of these elite business leaders is a game-changer for an investor. A commitment to a lifetime of self-improvement is one thing many of these game-changing elite business leaders have in common.
