 Good day, film investors. Now what has Buffett been buying last quarter? Apple and Apple stock and a lot of it. Apple is now his biggest position, his biggest portfolio position making 40.6% of his stock holdings. So I really want to see why Buffett is buying Apple and I think I have a very different perspective than most analysts have on Apple. Because Buffett is looking for a 10% return on investment while Apple has now a price to earnings ratio of 18, which is just north of 5%. So it means that Buffett sees much more potential in Apple and that's why he is buying the stock. Let's see. According to some surveys JP Morgan 92% of iPhone customers will buy another iPhone while a Comcast survey indicated a 96% retention rate. So when you put that on the 1.3 billion devices then you have an ecosystem of loyal customers and that's what Buffett is looking for because he's always looking for a moat, investing in a moat. What will Apple do with those 1.3 billion customers growing customer base? They will increase the services, they will grow Apple Pay. Apple Pay is now available in more than 50% of merchants in North America. So if they can increase that further we will stop walking around with our wallets and we will just walk around with our phone. So that's perhaps the future that Buffett sees. In the meantime he gets a nice dividend plus a lot of returns from buybacks, which I'll show you later in the model how that can affect Apple's stock price and why Buffett is buying Apple. Remember Buffett and Munger said that their long-term aim for return for Berkshire is 10% now. So he thinks Buffett is still cheap and will deliver a 10% or higher return in the long term. Apple's services revenue was up 18% last year and they are on schedule to doubling their 2016 services revenue by 2020. If they continue on that pace up to 2027 services might be the biggest component of Apple's revenue. So services, Apple Pay, everybody will walk around with their piece of hardware a phone that their whole life will be on it. So perhaps Buffett is saying okay this is another American Express. People will simply use their phone to pay to do whatever to do all the transactions so I better be invested in something like that. Plus the yield now is not that bad and there is a lot of cash. Second thing that he wants after remote is a great return on invested capital and Apple has a net profit margin of 21%. That's one of the best returns on invested capital out there. So if I put everything in a model we go from net income of 48.35 billion in 2017 and we make that net income grow at 10% over the next 10 years we come to 125 billion of net income in 2027. If Apple continues to buy back 3% of the number of shares outstanding over the next 10 years the number of shares outstanding will go from the current 5.25 billion to 3.87 billion which means that earnings per share if that happens will go from the current 9.21 dollar end of Q4 for Apple 2017 to 32.39 dollars. If we add a price earnings ratio of 20 onto that we get to a stock price of 640 and the market capitalization of 2.5 trillion. So that is what Buffett is buying now. If it doesn't happen he will get his dividends he will probably get a good return on investment however the potential is there to get a great return on investment. Apart from Apple Pay there is the augmented reality a lot of things that go around and evolve around Apple's ecosystem of 1.3 billion highly paying customers because they paid a lot for that iPhone. Now something very important if I look at what analysts have been asking the management in the last conference call it is mostly short term. It all evolves around the capital structure iPhone demand and pricing the 1000 iPhone 10 or iPhone X versus cheaper products March quarter guidance with weaker dollar iPhone replacement cycle that is getting longer tax rate home pod trends in China net cash. Only Michael Olson from Piper's Jeffrey was asking about future products and how the management sees a augmented reality fit Apple's future. So only one analyst asks a long term view only one analyst has a long term view of what's going on or at least asks a question about that. However the key with Apple I think is the long term view not the focus on the next quarter March guidance or on the next iPhone cycle the focus if you really an investor you're focusing on the ecosystem Apple is building and that will last for the next 10 20 years as it has been the case for the past 41 years since Apple has been founded. I also want to compare Apple to others so the customer base Apple 1.2 billion Microsoft 1.2 billion Google 2 billion Amazon 250 million Facebook 1.4 billion Netflix 100 million the price to earnings ratio is the lower with Apple which means the company's already profitable and it's monetizing hardware sales not even services yet so there is a huge margin for improvement Microsoft much higher Google much higher Amazon much higher price to earnings ratio also the market caps are there Netflix says is much lower but also market caps aren't much away from apples but apples is the most profitable of all those companies so from that perspective from a customer base to earnings Apple is the cheapest of the bunch so if you're looking for a good long-term investment that will give you above 10 percent over the very long term buy Apple in reinvest the dividends and you will do probably very very fine over the very very long term and that's why Buffett is buying Apple