Earlier this week, Warren Buffett reported that Berkshire Hathaway bought shares in Apple (NASDAQ:AAPL) during the first quarter of 2022. At around the same time, Michael Burry disclosed that Scion Asset Management has a short interest in Apple stock.
In other words, Buffett is betting on Apple going forward and Burry is betting that the share price is going to go down. So who’s right? And should I be buying Apple shares for my own portfolio?
Apple stock
Both Warren Buffett and Michael Burry are extremely sophisticated, intelligent, and thoughtful operators. But they seem to have come to a difference of opinion regarding Apple.
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As Buffett has pointed out in various interviews, there’s a lot to like about Apple stock. The company engenders strong loyalty among its customers, has high returns on invested capital, and uses its free cash to buy back shares aggressively.
On the other hand, there are reasons for thinking that Apple stock might struggle going forward. Supply chain issues, increased costs of materials, and lockdowns in China – where a lot of Apple’s products are manufactured – might well impact sales in the near future.
Who’s right?
So is Buffett right to be buying Apple shares, or is Burry making a good move in betting against them? I think the answer is that they both are.
In my view, the key to seeing why both Buffett and Burry might be right is observing that they have different time horizons. Where Buffett is looking at the long term, intending to hold Apple stock for an indefinite period, Burry is using the options market to make a bet on where the Apple share price is going in the near future.
Buffett said in his most recent letter to shareholders that he does not make predictions about what a company’s share price will do. Rather, he invests based on his judgements of what the underlying business is likely to do over time.
In taking a short position, Burry is making a prediction about what the Apple share price will do in the near future. While that might be based on an assessment of how the company will perform, it’s fundamentally about share price movement.
That means that it’s possible for both Buffett and Burry to be right about Apple stock. If the long-term prospects for the company are good, but the share price is likely to be hit by near-term headwinds, then Buffett’s long-term investment might prove wise even while Burry’s short-term bet against the stock also pays off.
Should I buy Apple stock?
The final question, then, is whether I should buy Apple shares for my portfolio. Personally, I think that there are more attractive opportunities at the moment – notably Amazon.com and Meta Platforms.
However, I’ll be watching the Apple share price carefully. Because if Burry is right and the share price is about to go lower, then I could be about to get a chance to buy shares in Warren Buffett’s largest stock position at a cheaper price in the near future.
