Please be positive and upbeat in your interactions, and avoid making negative or pessimistic comments. Instead, focus on the potential opportunities.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 32
If one is interested in assessing the value and potential risks of Berkshire shares, it is almost necessary to have an opinion on the value and potential risks of Apple shares.
Apple is one of Berkshire's biggest businesses, accounting for around (say) 1/6 of the value of a share of Berkshire.
For those who care to that degree, I
very strongly advise that you track down and read the study that the FT has just done on Apple and China.
It's a two-part article, full page yesterday and full page today.
It contains tons of basic history and other information, a lot of insightful thoughts, and quotes of some interesting opinions.
The latter may or may not be right, but broaden one's thinking.
One of the latter which is thought provoking:
A second loss of control was the result of Covid...a "huge, huge part of Apple's secret sauce"
is how frequently its top talent from California would travel to China and spend months at its suppliers' plants.
Two former Apple manufacturing engineers say the company's Chinese engineers really stepped up and proved themselves.
"Apple provided a training ground for Chinese manufacturing engineering that was second to none", one person says.
Apple, in turn, raised their pay and has been able to retain most of the team despite frequent recruiting efforts from rivals.
However, two people familiar with Apple's operations say giving up control risks slowing innovation and leaking intellectual property.
"The Cupertino guys stood back and let the Chinese take the lead", says one. "The Chinese guys completely control the product now."I'm not exactly sure HOW one would track down the articles if you're not a subscriber.
Part 1 is "How Apple tied its fortunes to China"
Part 2 is "Can Apple disentangle itself from China?"
I think these links are probably behind their pay wall:
https://www.ft.com/content/d5a80891-b27d-4110-90c9...https://www.ft.com/content/74f7e284-c047-4cc4-9b7a...Jim
PS
In case anybody wonders why I say around 1/6, this post explains
http://www.datahelper.com/mi/search.phtml?nofool=y...J
No. of Recommendations: 9
No. of Recommendations: 4
If you search the article title on google, you can read the articles on FT website, bypassing the paywall.
No. of Recommendations: 2
"In case anybody wonders why I say around 1/6, this post explains
http://www.datahelper.com/mi/search.phtml?nofool=y...
"
this may refer to my question on clarifying your method.
Wouldn't it be more direct just to calculate the after tax proceeds assuming Apple was sold completely?
No. of Recommendations: 6
Tom Forte, senior research analyst at D.A. Davidson, joins 'Power Lunch' to discuss Apple's involvement with China, the company's biggest stock risks and the impact a weakening global economy has on Apple.
A couple viewpoints are discussed on their modest, but inexorable moves to shed its long term dependence on China. Confronted by strong shareholder concerns and pressure from Washington, I think, by sure inertia, creative solutions will be found to diversify away from potential geopolitical uncertainty ' and the sooner, the better. Hell, Tim Cook, the visionary he is, needs to think outside the box and look to groom a lot of that human/intellectual capital and manufacturing efficiencies right here in the USA. Waive the white flag on wages short term and pay your people well, while simultaneously streamlining in other areas ' implement robotics as much and as quickly as possible'lobby for favorable tax legislation to redeploy Apple facilities to the American heartland, etc, etc. this isn't insurmountable but an expeditious plan of action is needed.
https://stocks.apple.com/AXS7EybYuQWOuIS_G9jaFJQ
No. of Recommendations: 13
Wouldn't it be more direct just to calculate the after tax proceeds assuming Apple was sold completely?
Sure, though I would add a proviso:
that it was sold at a "fair" valuation level, neither unusually high nor low. We're talking value, not price.
Another quibble might be that if you consider it an effectively perpetual position, the tax liability is pretty irrelevant--you really want only the present value of all future distributions.
But we can leave that to the geeks.
Still, either of those would only get you the gross value of the position, not the fraction of the value of a Berkshire share.
Berkshire doesn't do a lot of it, but they do borrow money to make investments: there are very close to $2 in assets for each $1 in equity.
On average, I think of the percentage value of one of their investments to a shareholder as the value of the shares minus the proportional value of the liabilities.
In round numbers, any random 10% of their assets (counting its 10% share of liabilities) corresponds to 5% of the firm's value.
That sounds weird, but if you follow the logic you see why:
If you add up the value of all the individual assets, you get way more than the total value of the firm if you don't count the liabilities each time too.
If it's necessary to consider the liabilities for the sum of all positions, then it's necessary to consider it for any single big one when assessing its percentage value.
Another way to look at the proportional value of the Apple position for Berkshire holders, for the pessimists:
What would be the percentage hit to Berkshire if Apple were a permanent zero tomorrow?
That would be a much bigger number. When it goes to zero, the proportional liabilities don't go away.
Personally, I do it this way--
What's the Apple position actually worth? I use a multiple of cyclically adjusted owner earnings.
What's the value of a Berkshire share? I use various methods for various subsets of the firm, then add 'em up.
Divide A by B to find out what fraction of the value of a share is attributable to the Apple holding.
I generally get a number around 1/6. You might also get around 1/5, depending on assumptions.
Jim
No. of Recommendations: 1
Excellent article in the FT. Quoted Foxxcon producing $316bn of Apple goods, I assume for 2022!. Then goes onto to say the Indian story is a bit of a pipedream and max only 10% of production, perhaps 20% by 2030.
Nope China and Apple are truly "joined at the hip" just like value and growth.....
When it comes to such matters geopolitics matter and investment decisions need to be made accordingly.
Bit of a bind if you ask me. Diversify, sell half, and buy Alphabet IMO. Not just a great company but the price ain't bad either atm, Mr Munger also likes them. Get on the blower to Omaha.
No. of Recommendations: 1
For a year or two there's been universal chant that Buffett should buy Facebook/Meta and Google after selling you know what. Some of us stated that the old man's contributions to the oil/gas business were better allocations but to no avail, or even to getting all the posts removed (on the old board as notified they were "off topic").
META and GOOG are dominant but is this today's newspaper business of old? Cyclical growth with sneaky ever-growing competition? Media/eyeballs has had enormous captial slung its was for what's now decades.
And we still won't discuss energy, not popular and at times even off topic. Yet a huge part of Berkshire.
No. of Recommendations: 3
Thanks for calling our attention to these articles. They're very well researched and written. There are a few things that stood out to me:
1) Just prior to the beginning of this buildup of Apple operations in China, US politicians were encouraging companies to do just that - hoping it would influence China toward democratic values. - China has an interesting history of conflicts between Communism and Capitalism, that I read about in an Alan Greenspan autobiography. I think the illustration of Apple engineers asking technical questions of suppliers until they work their way down the chain of authority to where the questions can be answered is a step toward a more capitalist economic system.
2) It's interesting to see that Apple has reduced their ownership of equipment in China. Reading the first article, my concern was China kicking Apple out, and giving their equipment to others. With less equipment owned by Apple, this (maybe ever so slightly) reduces their likely damages. Still, I see it as a drawback that so much knowledge and equipment is in a country that could decide to take it all back. Whoever takes over would have an automatic 20% share of Apple's market, as China would likely decide to ban Apple products in conjunction with taking their business.
3) I think it's little consolation that "The candidate in the best position to become a rival to China as a new hub of manufacturing is India, which is expected to surpass it as the world's most populous country this year." India is one of just a few UN countries not on board with sanctioning Russia for their war against Ukraine. And, although we'd expect they'd take a neutral position in a US-China conflict, I don't think it's assured.
No. of Recommendations: 12
... 2) It's interesting to see that Apple has reduced their ownership of equipment in China. Reading the first article, my concern was China kicking Apple out, and giving their equipment to others. With less equipment owned by Apple, this (maybe ever so slightly) reduces their likely damages. Still, I see it as a drawback that so much knowledge and equipment is in a country that could decide to take it all back.
I worked for Gillette for a number of years in their Boston HQ. In my orientation, I was shocked to learn that Gillette made their own manufacturing machines and had a high-tech machine shop that built and shipped the machines across the world to our global manufacturing plants.
This was good business for Boston (running a high-volume and high-class machine shop to build these machines) and kept the IP here at HQ.
I was a bit surprised, and now concerned that Apple delegated the machine IP over to China. I think that's a bad sign.
'38Packard
No. of Recommendations: 5
Jim:
Thank you very much for this.
It got me off my tail to re-subscribe to the FT (or at least the one-month teaser rate)
I think the first article is encapsulated in this (fair use) quote: "Where Cook erred, he adds, is by doubling down over the past decade despite mounting evidence that Xi was ramping up repression at home and taking a more combative stance in international affairs." - Aaron Friedberg
...and the second article by these two:
"[A former Apple engineer]says the iPhone maker has been striving to move its operations outside China since at least 2014, but with little progress to show for it. 'China is going to dominate labour and tech production for another 20 years.'
and
"...the Foxconn labour researcher, predicts that as media attention dies down Apple will quietly increase its investments in the country. 'China has so many advantages,' she says. 'From the moderately educated and skilled workers to the really high level engineers and PhDs ' those providing expertise in cutting-edge knowledge.'
We live in interesting times
--sutton
No. of Recommendations: 0
