 Good day, fellow investor. I recently started with a series discussing Buffett's mindset, so we had compounding, we had the long-term patience needed to invest, and we will discuss his mistakes. However, everybody was commenting and pounding me about Apple. Nice video, however, I don't understand why Buffett keeps on buying Apple even if he admitted tech is out of his circle of confidence. Buffett losing billions. Is Buffett going to buy even more Apple stock now? But to stay on the mindset and implement a bit of investing mindset into this story about Apple, this is a great comment. I think Warren also said that he likes to keep away from Wall Street noise. That's why he enjoys living in Omaha and away from distractions. We currently live in an environment with information overload and Wall Street noise with the internet, except that could push us into making an irrational move. And this is the core, I want to discuss this, because Warren also says this. So Buffett chose to stay in this world, Omaha, Nebraska, where corn grows just minutes from downtown. Now Omaha is a nice town, but nobody claims it's a world financial center, and here the only thundering herd is actually on four feet. Don't you find Omaha a little bit off the beaten track for the investment world? Well, believe it or not, we get mail here and we get periodic goals and we get all the facts needed to make decisions. Unlike Wall Street, you'll notice we don't have 50 people coming up and whispering in our ear that we should be doing this or that this afternoon. Do you appreciate the lack of stimulation here? I like the lack of stimulation. We get facts, not stimulation here. How can you stay away from Wall Street? Well, if I were on Wall Street, I'd probably be a lot poorer. You get overstimulated on Wall Street, and you hear lots of things and you may shorten your focus, and a short focus is not conducive to long profits. Here I can just focus on what businesses are worth, and I don't need to be in Washington to figure out what the Washington Post newspaper is worth, and I don't need to be in New York to figure out what some other company has worth. It's an intellectual process. And the less static there is in that intellectual process, really the better off you are. So Buffett clearly says this. If you have too much information, you might shorten your focus and then make wrong investment decisions. So when looking at Apple, when looking at Buffett's investment in Apple, you have to have a long-term focus, which is not the case with most investors, and especially the media and internet. So let's talk about it. The main question is, okay, Apple fell 10% today talking about short-term focus, and is it a bargain? Is it a bargain? Is it a bargain? Well, that depends on you, because if you look at the short-term focus, if you have a narrow focus, like 99% of investors, then you look, okay, Buffett, Apple fall 10%. We'll discuss a little bit later more about Apple's price. However, you need to have a view about the business. What am I getting for my price over the long-term? And that's exactly what Buffett does. And I made a video in February of 2018 discussing that, and actually nothing has changed if you have a long-term view. So here's the video. 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's 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 a mode 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, we'll go from the current 9.21 dollar end of Q4 for Apple 2017 to 32.39 dollars. If we add the 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, weaker dollar, iPhone replacement cycle that is getting longer, tax rate, home pod, trends in China, net cash. Only Michael Olson from Piper 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're 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 Apple's, but Apple's 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% over the very long term, buy Apple, 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. And that's exactly that. It's not the market who will tell you whether Apple is a bargain or not. It's you. Look at Apple, look at what can happen to earnings, look at what can be your investment returns and then see how that fits your portfolio compared to other things. Do you have a short term focus? Will Apple stock go up or down? Nobody knows what will Apple stock do. Do you have a long term focus? Is this a good business that I want to add to my portfolio? Then we are talking about something and then we are talking about investing, not speculating. Let's dig deeper. The market is saying Apple lost so much over the last three months, Apple lost 10% in a day. The three year change is if I look at this correctly, up 46%. What are we talking about? Of course, there was this boom 100% up and now it's down. Who cares about the stock you're investing in a business? But it's difficult to forget about the stock price because there is so much stimulation from looking at the stock price and which leads away from the focus on the business. Most people focus on this, market value, single, biggest single day loss. Congratulations, Apple loses record 463 billion in market cap in three months. However, I bet that 90% of Apple shareholders didn't even read Tim Cook's letter and they are just focused on the headlines. You can read the headlines or actually read the letter and see what Apple has to say. Revenue of approximately 84 billion, gross margin of 48%, operating expenses 8.7 billion, slightly higher than the previous quarter, other income expenses 1 billion less than the previous same quarter of the previous year, tax rate 16.5% and the key there and why Buffett is investing over the long term, the number of shares computing diluted earnings per share to be approximately 4.7 billion compared to 5.1 billion last year. This is crazy and crazy how much stocks has Apple bought back. So it's about the revenues, the long-term profits. Then the question is will Apple go bust or will it continue to print money? As Cook says, our profitability and cash flow generation are strong and we expect to exit the quarter with approximately 130 billion in net cash. As we have stated before, we plan to become net cash neutral over time. Find out what that means if you are a long-term investor, even if you are a speculator. You might be surprised over the long term. But then you will see a lot of comments like this and even if Apple managed to survive and after looking at that list you have a disaster waiting to happen. That's usually what happens when stock prices decline because people don't look at businesses. So that's the psychology, that's the stimulus to the human mind and we have to really focus on our focus that it is rational long-term investment focus, focused on what are our needs, whether Apple is a bargain depends on you, not on the market, focused on the market and then you might understand approach to Apple, why Buffett is doing this, what's the value of the brand etc etc. So just a different point of view from what most of the market is now discussing. Thank you for watching, see you tomorrow and I'll discuss what am I doing with my stock market portfolios.