Warren Buffett shared a glimpse of 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 have all this money. What should we do with it? So we reviewed the alternatives. It was rather interesting.
This dialogue between two industry titans sheds light on the decision-making process of one of the world's most valuable companies.
Jobs, known for his transformative role in making Apple a global technology leader, contacted Buffett for advice on the company's cash management strategies. Buffett, legendary investor and chairman of Berkshire Hathaway Inc., outlined the four main options available for deploying cash: stock buybacks, dividends, acquisitions or retention.
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Although Jobs acknowledged that Apple's stock was undervalued, indicating that buybacks might be a wise choice, he ultimately decided not to take any action, preferring to maintain the company's cash reserves.
“I went through the logic of everything. “He told me they wouldn't have the ability to make big acquisitions that would require a lot of money,” Buffett said. “And then I asked him, I said, 'I would use it for buybacks if I thought my shares were undervalued.' And I said, “What do you think about that? The stock was 200-something. He said, “I think my stocks are very undervalued.” I said, “Well, what do better with your money?
Jobs liked having money and that's what he ultimately decided was his best option. Buffett added that Jobs interpreted their conversation as a sign that Buffett approved of his decision to hold on to the money. “I found out later that he said I agreed with him not to do anything with the money,” Buffett said.
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The conversation between Jobs and Buffett highlights a cautious approach to financial management, contrasting sharply with the steps taken by Jobs' successor, Tim Cook. Under Cook's leadership, Apple has aggressively pursued stock buybacks, spending more than $500 billion on them over the past decade. According to Business Insider, these expenses exceed the market capitalization of major companies like Visa Inc., JPMorgan Chase & Co. and ExxonMobil Corp., underscoring the scale of Apple's commitment to buying back its shares.
Apple's buyout strategy increased shareholder value and increased Berkshire Hathaway's stake in the tech giant without additional investment. Berkshire Hathaway, which owns nearly 6% of Apple, saw its stake increase thanks to these buybacks.
Buffett has publicly supported Apple's buyback efforts, highlighting in his 2021 letter to shareholders the positive impact of buybacks on Berkshire's holdings and the broader Apple ecosystem.
“Much of what the company retained was used to repurchase Apple stock, an act we applaud,” Buffett wrote. “Tim Cook, Apple's brilliant CEO, rightly considers users of Apple products his first love, but all of his other customers also benefit from Tim's managerial touch.”
While Jobs showed a preference for liquidity and financial flexibility, Cook leveraged Apple's financial strength to actively manage its capital structure, strengthening the company's position as a leader in the technology sector and providing value to its shareholders and stakeholders.
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