If you try to figure out not what they think, but how they think, then you will learn to fish not just get the fish. For a long time, a lot of people wanted to meet with Warren Buffett. I’m sure Warren Buffett was invited to speak at many conventions or get-togethers but always declined. However, he welcomed groups of students to come to Omaha and spent an unlimited amount of time with them.
When asked why he does it, he replied that young minds are eager to learn, while older folks just want stock tips. This insight is important because when you listen to someone you admire, like Warren Buffett, it’s not about what they think, but how they think. This is the key to learning how to fish, not just gathering fish. Let me give you a few examples. Despite being almost 93 or 94 years old, Warren Buffett grew up in a time with very little technology and lived most of his life without personal computers. This is why he refused to invest in technology companies for a long time, even though his best friend is Bill Gates, the founder of Microsoft. He argued that he simply didn’t understand technology, which is understandable. The irony of this story is that many young people refuse to buy technology stocks because they don’t understand them. They essentially parrot Warren Buffett’s words, but they overlook the lesson that they should stick to investing within their circle of competence. In other words, they should learn to think like Buffett. The big message here is not to avoid technology stocks altogether but to invest wisely within your area of expertise.
The interesting twist to this story is that in 2018 and 2019, Warren Buffett made Apple, a technology company, the largest position in his portfolio. He earned more money on Apple as a single investment than on any other stock he had previously owned.
Another lesson to take away is that you have a circle of competence, but you can also expand it. Warren Buffett’s insight was truly unique. He saw Apple as a company with an incredibly strong brand and the ability to set prices.
There is yet another aspect to this story. We purchased Apple for our clients’ accounts, as well as for myself, in 2012. At that time, Apple was one of the most despised companies on Wall Street. My insight was that people only viewed Apple as a cell phone company, but I saw that it was much more than that. Apple is not just a hardware company, it’s also a software company and an ecosystem. Therefore, once you buy an Apple product, you’re going to keep buying Apple products. Because once you learn the Apple operating system, switching to Android is like learning a new language. Additionally, Apple products work so well together that introducing a non-Apple product into the ecosystem doesn’t work as well. So we made a lot of money with Apple. But then I sold it. I think we owned it for six or seven years. We made plenty of money in the stock, but I analyzed Apple and had a couple of insights that I want to share. One insight was that under Tim Cook, Apple has struggled to create new product categories. This insight is still partially right, as seen with the failed attempts to create an Apple car. Apple changed its strategy four times during this process. This shows that Tim Cook is not Steve Jobs.
My thinking was that everyone already has a cell phone, so it’s challenging for Apple to significantly increase its revenue without creating a new product category. I was partially right, as Apple has successfully created new software categories such as Apple TV and News Plus. They have done a great job with their services. However, where I was incorrect was in my prediction of future iPhone prices. Historically, consumer electronics prices have always decreased. This is where Buffett was right because Apple has such a strong brand. When they raise the prices by a few hundred dollars, people complain about it for about five minutes and then they pay. The lesson for me was that when I learned from Buffett, it’s not that I should have bought Apple stock, but rather that when you look at the company, there are often many ways to interpret it. My mental model was correct when I bought the stock, but Apple changed.
The brand has always been there. The ability of the Apple brand to charge more for its products than everyone else has always been there. I just missed that. So the main point is, if you find someone you admire, don’t just mimic their thoughts, but rather learn and understand how they think.
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