Chapter 4 calculated the market’s speculation about growth for Apple Inc. (AAPL) in 2018 when Berkshire-Hathaway took a large stake in the stock. At a stock price of $209.41 the market’s implied growth rate was 2.29%, suggestive of a BUY position. With a forward ROE at the time of 44.93% and a book-to-price of 0.125, one can construct a growth-return profile to give the expected return (ER) from investing in Apple for different growth expectations:
Here is the growth-return profile:
| Growth, g | ER |
|---|---|
| -2% | 3.87% |
| -1% | 4.74% |
| 0% | 5.62% |
| 1% | 6.50% |
| 2% | 7.38% |
| 3% | 8.25% |
| 4% | 9.13% |
| 5% | 10.0% |
| 6% | 10.87% |
In December 2024, Apple’s forward ROE was 96.13% and its book-to-price was 0.016. Thus,
Here is the updated growth-return profile:
| Growth, g | ER |
|---|---|
| -2% | -0.43% |
| -1% | 0.54% |
| 0% | 1.54% |
| 1% | 2.52% |
| 2% | 3.51% |
| 3% | 4.49% |
| 4% | 5.47% |
| 5% | 6.46% |
| 6% | 7.44% |
Do you see how the profile has shifted down over time as Apple’s stock price increased? In 2018, the profile indicated a good BUY, but the return for growth purchased declined significantly by 2024. Berkshire Hathaway reduced their stake in Apple during 2024.