As investors, we could all learn something from Warren Buffett. In a recent piece by Jonathan Weil at Bloomberg, he outlines why Apple Inc. (NASDAQ:AAPL) may be going down the wrong road with its proposed stock buy back and makes a case that Apple Inc. (NASDAQ:AAPL) needs to include more details like Buffett has done at Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B).
CEO of Apple Tim Cook announced this week that Apple’s board has approved a sixfold increase in its stock-repurchase plan to $60 billion. Unlike Buffett, however, he is taking some criticism for the manner by which Apple Inc. (NASDAQ:AAPL) plans to return this well deserved money back to its shareholders.
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Despite the stock tanking in the last year, Apple still has a market value of $383 billion. Its stock loss of over 40percent has made the company do a one-eighty on stock buy-backs. What used to be a taboo subject has Apple looking as though they feel they must go through with this plan. The problem is the plan lacks details.
“This is the largest single share repurchase authorization in history and is expected to be executed by the end of calendar 2015,” Apple said in an April 23 news release. The release came the same day that Apple announced its earnings and first quarterly profit decline in a decade.
In 2011, Warren Buffett and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) said it would begin repurchasing shares for as much as a 10 percent premium to its book value. That number was subsequently raised by Buffett and his board to 20 percent.
While both Apple Inc. (NASDAQ:AAPL) and Buffett felt the move would be advantageous, only Buffett made it clear how it would be accomplished. For example, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is currently trading at 41 percent premium to book, which means that shareholders know that Buffett isn’t looking at any making any purchases until this changes. Additionally, Buffett made it clear that this program had no timetable and that no buyback would go ahead if the company’s cash on hand dipped below $20 billion.
Apple Inc. (NASDAQ:AAPL) seems intent on completing this buyback by the end of 2015 with no regard to the most important consideration, price. Debt free Apple also intends to borrow money in order to complete this planned buyback rather than repatriating its offshore assets. Apple’s war-chest exceeds $150 billion with 70 percent of it held out of the country.
The primary point Mr. Weil made in his piece is that while a good idea, Apple Inc. (NASDAQ:AAPL) has no obligation to continue its plan if circumstances prove it unwise. While Tim Cook is certainly interested in the market believing this move will be completed, he could learn from Mr. Buffett and set parameters as to when the buyback will go forward.