Warren Buffett shared a look into a conversation with Steve Jobs about Apple Inc.’s financial strategy during a 2012 appearance on CNBC’s “Squawk Box.”
In the “Ask Warren” segment, Buffett said, “It was an interesting conversation because I hadn’t talked to him in a long time. He said, ‘We’ve got all this cash. What should we do with it?’ So we went over the alternatives. It was kind of interesting.”
This dialogue between two titans of industry sheds light on the decision-making process at one of the world’s most valuable companies.
Jobs, known for his transformative role in making Apple a global technology leader, reached out to Buffett to seek advice on the company’s cash-management strategies. Buffett, a legendary investor and chairman of Berkshire Hathaway Inc., outlined the four primary options available for deploying cash: stock buybacks, dividends, acquisitions or holding onto it.
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Despite Jobs’s acknowledgment that Apple’s stock was undervalued, indicating that buybacks could be a wise choice, he ultimately decided against taking any action, preferring to maintain the company’s cash reserves.
“I went through the logic of each thing. He told me they would not have the chance to make big acquisitions that would require lots of money,” Buffett said. “And then I asked him the question, I said, ‘I would use it for buybacks if I thought my stock was undervalued.’ And I said, ‘How do you feel about that?’ The stock was 200-and-something. He said, ‘I think my stock is very undervalued.’ I said, ‘Well, what better to do with your money?’”
Jobs liked having the cash and that was what he ultimately decided was his best option. Buffett added that Jobs interpreted their conversation as Buffett endorsing his decision to hold onto the cash. “I later learned that he said I agreed with him to do nothing with the cash,” Buffett said.
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The conversation between Jobs and Buffett highlights a cautious approach to financial management, contrasting sharply with the actions taken by Jobs’s successor Tim Cook. Under Cook’s leadership, Apple has aggressively pursued stock buybacks, spending over $500 billion on them in the last decade. According to Business Insider, this expenditure surpasses the market capitalization of major corporations like Visa Inc., JPMorgan Chase & Co., and ExxonMobil Corp., underscoring the scale of Apple’s commitment to repurchasing its shares.
Apple’s buyback strategy has enhanced shareholder value and increased the stake of Berkshire Hathaway in the tech giant without additional investment. Berkshire Hathaway, owning nearly 6% of Apple, has seen its ownership stake grow as a result of these buybacks.
Buffett has publicly supported Apple’s repurchase efforts, noting in his 2021 letter to shareholders the positive impact of the buybacks on both Berkshire’s holdings and Apple’s broader ecosystem.
“Much of what the company retained was used to repurchase Apple shares, an act we applaud,” Buffett wrote. “Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well.”
While Jobs exhibited a preference for liquidity and financial flexibility, Cook has leveraged Apple’s financial strength to actively manage its capital structure, reinforcing the company’s position as a leader in the technology sector and delivering value to its shareholders and stakeholders alike.
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This article Warren Buffett Says Steve Jobs Once Called Him Asking For Advice On How To Invest Apple’s Cash — Then He Completely Ignored The Advice originally appeared on Benzinga.com
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Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
