1 overlooked reason why Warren Buffett made so much money investing in Apple

Since Warren Buffett bought an apple (NASDAQ:AAPL) shares in 2016, the stock went from about $23 to $242. That’s a 952% return without including dividends.

Much of Buffett’s success comes from buying quality stocks at good prices. But investors who hope for the same results often overlook a reason that I think may be the most important.

Catching up

Charlie Munger – who was Buffett’s right-hand man Berkshire Hathaway – they used to say that investment returns do not come from buying or selling. They are out of control.

Berkshire Apple’s investment is an example of this. Since 2016, the stock has looked bullish several times, but selling at any of these times would have been a mistake.

For example, the share price peaked at $124 in August 2020. But an investor who sold at that time would have lost almost half of the gains made by holding until today.

Equivalently, the stock looked expensive in November 2020 at a price-to-earnings (P/E) of 40 times. But the price has more than doubled since then, rewarding investors who didn’t sell.

There is a clear lesson here for investors. Even if the stock looks expensive, it may be worth it if the underlying business can continue to grow.

This is why the ability to avoid sales can be so important to the overall return on investment. Despite this, Buffett has been aggressively reducing Berkshire’s stake in Apple this year.

When is it on sale?

Buffett holding Apple stock even when it looked like it was expensive generated returns that would otherwise have been missed. But this does not mean that sales are always wrong.

For any company, it is possible for its stock to trade at a higher price than the underlying business value. And in that case, shareholders should think carefully.

Is that the case with Apple? It could be – there are major issues facing the company at the moment and investors should consider these before considering what to do.

Another political situation. The strained relationship between the US and China is a potential problem for the iPhone maker both in terms of its production base and its customers.

Another is the US Department of Justice that has won its prosecution case Alphabets of being an illegal monopoly. This can affect the fees they pay to Apple to maintain this status.

These are reasons to consider sales, but there is still strong growth coming from the firm’s services segment. And this means that investors should be aware of the risk of selling early.

A lesson for investors

Finding good investment opportunities is not easy, but this is only one part of getting good returns in the stock market. The other half avoids selling themselves early.

Regarding Apple, Buffett said in May that the decision to reduce Berkshire’s stake was for tax reasons. And I tend to take this for granted, rather than looking for a deeper meaning.

That said, I think investors considering a sale should weigh the firm’s growth prospects carefully. And while stocks may look expensive, that’s not reason enough in itself.