Selling Apple

When I bought Apple just over a year ago, I really thought it would end up being a long-term holding. A combination of 1) market pessimism – the market appeared so fixated on hardware numbers that it seemed the stock was destined to languish as hardware margins were sure to fall over time and 2) rising intrinsic value – the company’s recurring revenues and share buybacks were likely to force me to continually increase my estimate of the company’s value over time, resulting in an increasing margin of safety in my eyes.

Well #2 did happen but #1 did not: as is wont to occur, the market’s mood has shifted dramatically. Thankfully, I’m not in the business of predicting Mr. Market’s mood, or I would have been forced to choose another profession long ago.

With this optimism has come a dramatic re-rating of Apple’s prospects. The stock is up over 50% from its 2016 lows, and as a result my perceived margin of safety has shrunk bigly. As such, I have now sold all my shares in a (perhaps futile, in this market) search for greener pastures.

I do find it interesting that I’m selling just as Berkshire (BRK-A, BRK-B) is ramping up its purchases. Being on the opposite side of those guys feels wrong for a few reasons. It’s Buffett whose wisdom got me into investing in the first place, and from whom I’ve learned so much. Also, those guys are geniuses, so doesn’t that make me an idiot for being on the other side of that trade?

Maybe. But I also think we have different mandates. Buffett is forced to play in a world where only mega-caps exist. Huge companies with staying power like Apple (AAPL) that are not wildly overpriced are exactly the kinds of things Berkshire needs. On the other hand, I have a much wider opportunity set; it makes sense that I sometimes have alternative uses for capital that are superior to the small opportunity set Buffett is allowed. From that perspective, I think it’s a good sign that I like the same companies Berkshire does…I just require a better price!