Warren Buffett tripled investment in Apple

[ironchef]

Here is my question if anyone can answer. Based on the size he is buying, is there anyway that the stock could have dropped during the time he is accumulating? Sure you have your regular day traders going in or out, or your swing trades hoping to make a few bucks, but when you get a heavyweight buying over 40 million shares for a long term hold, is the only result that price has to go up?

AAPL average daily volume is about 30-50 million shares. I doubt his buying 40 million shares over several months would move the market.

 

[Gotcha]

AAPL average daily volume is about 30-50 million shares. I doubt his buying 40 million shares over several months would move the market.

At the same time.. what's the float? Since this a long term hold, could removing enough shares from floating around cause a bit of a squeeze? If another institution didn't want to sell a huge bunch, so all that was available was what usually is only held for a little while, then maybe this could have an affect?

 

[ironchef]

He's a genius! Bought it at a ridiculously cheap price.

He probably read the thread started by Phill Twist on AAPL.

 

[speedo]

He probably read the thread started by Phill Twist on AAPL.

He heard Surf was going short.

 

[ironchef]

At the same time.. what's the float? Since this a long term hold, could removing enough shares from floating around cause a bit of a squeeze? If another institution didn't want to sell a huge bunch, so all that was available was what usually is only held for a little while, then maybe this could have an affect?

Float ~5.23 billion shares so his purchase represented 0.76% of the float.

 

[ironchef]

He heard Surf was going short.

Who is Surf?

 

[Gotcha]

Float ~5.23 billion shares so his purchase represented 0.76% of the float.

Ok, now this is actually interesting. I do think that 0.76% of all the available shares is quite a bit. The next thing to consider is how many of these shares actually trade.

I see it like real estate. Sure your house might be worth a million bucks cause the last few sold for that, but if everyone wants to cash out, there is no way that everyone is gonna get a million bucks. All that has to happen is a few people step in to buy and hold for investment, who aren't part of the population and hence interested in living there, and all of a sudden, the prices shoot up 20%, 30%, 50%. And this is only based on the transaction of several thousand houses, not the hundreds of thousands that physically there in a geographical location.

Likewise, taking 0.76% of the shares out of circulation, when maybe only 10% were in circulation would actually be a pretty big number. Where I'm going with this is when you get such a huge buyer, he is able to move the price. And when its Buffet, who is incredibly well connected, its also much easier to make bets on companies when you have political power and all that jazz.

 

[speedo]

Who is Surf?

MarketSurfer, haunted this place with his nonsense for years...now back as a paying vendor

Ok, now this is actually interesting. I do think that 0.76% of all the available shares is quite a bit. The next thing to consider is how many of these shares actually trade.

I see it like real estate. Sure your house might be worth a million bucks cause the last few sold for that, but if everyone wants to cash out, there is no way that everyone is gonna get a million bucks. All that has to happen is a few people step in to buy and hold for investment, who aren't part of the population and hence interested in living there, and all of a sudden, the prices shoot up 20%, 30%, 50%. And this is only based on the transaction of several thousand houses, not the hundreds of thousands that physically there in a geographical location.

Likewise, taking 0.76% of the shares out of circulation, when maybe only 10% were in circulation would actually be a pretty big number. Where I'm going with this is when you get such a huge buyer, he is able to move the price. And when its Buffet, who is incredibly well connected, its also much easier to make bets on companies when you have political power and all that jazz.

The float of a stock is the amount available for public sale or purchase. A company can have shares issued and outstanding but not in float.

 

[Gotcha]

The float of a stock is the amount available for public sale or purchase. A company can have shares issued and outstanding but not in float.

Right, but how much of this is actually trading versus sitting for years in someone's account, or even a pension fund? It may be 0.76% of all shares, but if 80% of those shares haven't been traded in the past 6 months, then all of a sudden, this 40 million shares is a much bigger percentage of the shares available for trading. Each time they scoop up several thousand, its not like they dump it back onto the market in the afternoon. And they do this over several days or weeks, so I would think this has an affect, a fairly significant affect.

Lets assume that of the 80% of the shares are locked away. So of the 5 billion shares, maybe only 1 billion will actually trade over the next few months, and that even seems large to me. But now, those 40 million shares he bought represent 4% that he scooped up from what is trading, and like I say, I happen to think that the amount of shares that traded in the past 6 months is way less than 20%.

 

[speedo]

Right, but how much of this is actually trading versus sitting for years in someone's account, or even a pension fund? It may be 0.76% of all shares, but if 80% of those shares haven't been traded in the past 6 months, then all of a sudden, this 40 million shares is a much bigger percentage of the shares available for trading. Each time they scoop up several thousand, its not like they dump it back onto the market in the afternoon. And they do this over several days or weeks, so I would think this has an affect, a fairly significant affect.

Lets assume that of the 80% of the shares are locked away. So of the 5 billion shares, maybe only 1 billion will actually trade over the next few months, and that even seems large to me. But now, those 40 million shares he bought represent 4% that he scooped up from what is trading, and like I say, I happen to think that the amount of shares that traded in the past 6 months is way less than 20%.

Yeah hard to know.