On Thursday, Aug. 30, Warren Buffett (Trades, Portfolio)’s 88th birthday, CNBC’s Becky Quick interviewed he Oracle of Omaha. During the interview, Buffett discussed his differentiated view of Apple (AAPL, Financial).
He compared the iPhone to real estate on Fifth Avenue and made the case for the utility of the iPhone relative to its price. Buffett also shared his view on the packaged foods industry when asked about Campbell (CPB, Financial). He said the packaged foods businesses will not be a sensational business five to 10 years from now. Below are the relevant parts of notes from the interview.
Becky Quick: Your concentration in the stocks you own has gotten a little more concentrated recently, there was a filing that came out not too long ago that showed Berkshire Hathaway was continuing to buy shares of Apple (AAPL, Financial). That stock is also a new all-time high last night.
Buffett: Yes.
Becky Quick: Now you own 5% of the shares outstanding of Apple. It's the biggest holding for Berkshire Hathaway at $56 billion. Have you continued to buy even since that filing?
Buffett: We bought just a little, about 6 million of the shares are attributable to another fellow in the office that's owned it for a considerable period of time. The rest are my portfolio, but I bought just a little bit -- I like to buy them cheaper. It's very difficult. We started buying or I started buying when the stock was maybe 100, I was buying it kind of as fast as I could, and I ended up buying some as high, a whole lot higher. I don't want to name the exact price but a whole lot higher. I'd rather have it go down for one thing, if it goes down apple is going to buy a lot of stock back, already buying stock back. If it goes down 10% it means they get to buy 10% more shares and my interest will go up 10% more for spending that money I am benefited by going down if I were to talk my book, I would talk it down.
Becky Quick: I spoke with an analyst today, he pointed out the interesting thing about Apple for a long time it was a volatile stock, it traded in the boom and bust cycle. Every time they had a new phone that came out it would push the stock higher and if it didn't have a new release it would drop he said it is still 65% of the business, but a lot of people look at it differently and wondering how you look at it. Is this a boom and bust cycle or something different?
Buffett: Not in the least. I like to see the new release do well or you know, but I do not focus on the sales in the next quarter or the next year I focus on, they won't tell you exactly how many but hundreds and hundreds and millions of people who practically live their lives by it, and if you look at that little piece of whatever it is, that is some of the most valuable real estate in the world. Fifth Avenue will never come close to that. You've got hundreds and hundreds of millions of people with loads of buying power, and able to do business or learn information or whatever it may be and it's part of their habit of living, they spend hours a day and it does all kinds of things for them so that real estate is worth a fortune, and it's nice to have it added to, as they sell new phones and of course a lot of them are replacement phones but they're adding to hundreds and hundreds of millions of consumers that are never going to get to Fifth Avenue, they're never -- and you are an indispensable part of their lives. It's an extraordinary product.
Becky Quick: you don't look at it like a tech analyst would or a tech company, for that matter?
Buffett: They've got to keep having the product that this huge clientele regards as indispensable. It's got to be the best thing that they can tell us when airplanes will arrive or whatever it may be, what the weather will be what stocks are doing, millions, play games, whatever it may be, and that's important that their replacement products are looked at as super desirable, but one of the things that I come to understand is we have a very large retailing operation at Nebraska Furniture Mart and if people went in to buy the latest iPhone or whatever it might be, if for some reason we didn't have it, you couldn't sell them anything else. They either went next door which we didn't want them to do or they came back I mean, it wasn't an alternative, and when you have a product that is that personal, that valuable, and they talked about I've owned thousands, I have a plane that cost me a lot, a million dollars a year or something of the sort. If I used the iPhone, I use an iPad a lot, if I use the iPhone like all my friends do, I would rather give up the plane, which is a million or million and a half a year for something that costs a thousand bucks the iPhone is enormously underpriced. Now it's got competition so you can't push the price, but in terms of its utility to people, and what they get for a thousand dollars someplace else, you know, you can have a dinner party that would cost that, and here this is, and what it does for you, it's incredible.
Becky Quick: Warren, let me ask you about the news of the day. Campbell's came out with its own business initiatives, a strategic initiative today.
Buffett: I saw that.
Becky Quick: They're selling off a couple of units, the fresh foods and the international. Does that make it more attractive or less attractive as a buying opportunity for something that could get wrapped in potentially to Kraft Heinz(KHC, Financial)?
Buffett: I don't know that it changes the picture a lot. Presumably they're going to get fair value for that. So if they would be calculated by any acquirers being worth "X." Now it may or may not be tax efficient. I don't know the tax basis on those assets. But if they have a low tax basis it then it actually decreases value a little bit for another buyer, because you'll give some of it to the government in the process, but I don't think -- I don't think in terms of any other company looking at it for acquisition, they're probably selling the assets that those companies would have been particularly looking for. But I don't know Campbell that well.
Beck Quick: You're saying you don't know it that well makes me think you haven't been looking it over considering it as a purchase because Dan Loeb would like to see somebody buy it. Would Berkshire be interested, would Kraft Heinz be interested?
Buffett: Well, Berkshire certainly wouldn't be. But that's partly because we own Kraft Heinz (KHC, Financial), too. We wouldn't do anything. But I think it's very hard to offer significant premium for a package goods company and have it make financial sense. The packaged goods business makes high returns on tangible assets that it has, but it is a tougher business than it was ten years ago and the stocks are higher than they were ten years ago. We back in the '80s were the largest shareholder of General Foods. I always liked brands. And they're very good brands. But in terms of the battle of the retailers versus the brands and the willingness of people to change their habits probably has a higher propensity for that than 20 or 30 years ago. So branded goods, branded packaged goods are a very, very, very good business in terms of return on tangible assets. But they're not a sensational business in terms of where you can be five or ten years from now.
