The Lesson in Buffett’s Winning Apple Bet

In 2016, Warren Buffett’s Berkshire Hathaway made a bold move by purchasing Apple stock at a price of just $28.35 per share—a decision that would eventually yield an 850% return over eight years. By 2025, Berkshire had exited its position entirely, having sold the remaining shares as Apple’s valuation soared to unsustainable heights. This journey—from entry to exit—offers a masterclass in value investing, discipline, and the critical importance of timing.

The Winning Bet: Valuation as a Compass

When Berkshire first invested in Apple, the stock was trading at a P/E ratio of just 10.6, far below its historical average and well below the broader market. Buffett’s team recognized that Apple’s $216 billion in cash reserves, dividend growth, and untapped potential in services (like the App Store and streaming) made it a rare “growth at a value price.” By 2024, Apple’s revenue had risen 66% to $9.4 billion, and its EPS had nearly tripled—but its stock price had skyrocketed far beyond earnings growth, driven by multiple expansion.

The Exit: When Growth Meets Overvaluation

By 2023, Apple’s P/E had swelled to 34–41x, a stark contrast to its 2016 entry multiple of 10.6. Even though Apple continued to deliver strong earnings—12% EPS growth in 2024—its valuation now demanded 15–20% annual revenue growth to justify the stock price. Analysts projected only 6% revenue growth in 2025, however, due to market saturation in key regions like China and slowing innovation cycles.

Buffett’s team acted decisively, reducing holdings from 916 million shares in Q3 2023 to zero by 2025. The exit wasn’t just about valuation; it reflected a broader shift in Berkshire’s strategy. Proceeds from Apple were reinvested in undervalued sectors like Domino’s Pizza (DPZ), which traded at a 40% discount to its intrinsic value, and traditional industries with stable cash flows.

Key Lessons for Investors

1. Valuation Trumps Momentum:
   Apple’s rise was fueled by multiple expansion, not just earnings. Investors who chased the stock after 2018 missed the critical warning signs: By 2020, its P/E had already surpassed 30x, yet many overlooked this as growth remained strong. The lesson? Never pay a “growth multiple” for a stock without confirming the growth will materialize.

2. Discipline Over Emotion:
   Buffett’s exit underscores the need to sell when a stock becomes fully valued, even if the company remains healthy. Apple’s 2025 stock dips after earnings—despite beating estimates—highlighted how overvaluation can negate short-term wins.

3. Rebalance, Don’t Anchor:
   Berkshire’s pivot to Domino’s Pizza (a business with a 56% return on invested capital) demonstrates the importance of rebalancing portfolios to exploit mispriced opportunities. Anchoring in a winning stock can blind investors to better bargains elsewhere.

Data-Driven Proof of the Strategy

• Apple’s Total Return (2016–2024): 850%, driven by 73% from price appreciation and 12% from dividends.
• Post-Exit Performance (2025): Apple’s stock fell 14.7% YTD through Q2 2025, underperforming the S&P 500.
• Domino’s Pizza (DPZ): Berkshire’s reinvestment paid off, with DPZ’s stock rising 28% in 2024 due to its 9.95% WACC and fortress-like global expansion.

Conclusion: The Art of Exiting Well

Buffett’s Apple bet wasn’t just about buying low; it was about selling at the right time. The 850% return was possible because Berkshire adhered to its core principles:
- Enter when valuation is compelling, not just when the stock is “hot.”
- Exit when the margin of safety erodes, even if the company is still strong.
- Reinvest in undervalued opportunities, not in overhyped ones.

As Apple’s 2025 struggles show, overvaluation breeds complacency—and eventual disappointment. Buffett’s lesson? Investors who marry growth with reasonable prices, and the courage to sell when they diverge, will always win.