Anatomy of an AAPL

In spring 2016 I made my first individual stock investment—putting 20% of my modest net worth into Apple stock. Eight years later, in summer 2024, I sold the entire position for a +817% pre-tax return. Along the way AirPods were introduced and independently reached the size of a Fortune 500 company, Apple Watch became the best selling watch of all time, Warren Buffett made Apple his largest stock holding, services revenue nearly quadrupled, and the U.S. Justice Department sued Apple for being a monopoly. Oh and I went and worked at an Apple Store for 10 months to get a peek behind the curtain and see if the company was as spectacular as I suspected (it mostly was). Here I am going to recall the journey and analyze my decision process, highlighting what I got right, what I got wrong, and the many lessons learned.

The Purchase (April 2016)

Stock Price: $24.47 [1]
Market Cap: $534B
P/E Ratio: 11
Net Sales: $228B
Net Income: $51B
Free Cash Flow: $70B
Net Cash After All Liabilities [2]: $58B
Gross Margin: 39%
Operating Margin: 31%
Return on Assets: 14%
Return on Equity: 36%
4-Week Treasury Bill Rate: 0.2%
S&P 500 P/E Ratio: 24

My investment thesis at the time of purchase was pretty straightforward: Apple was one of the strongest businesses in the U.S., with intense brand loyalty, best-in-class products, a fortress-like balance sheet, and a valuation that suggested it had begun a slow progression towards extinction. It had been nearly 5 years since Steve Jobs had passed, iPhone sales growth was slowing, and the consensus was largely that Apple was done innovating and that meant the stock was done performing. Wall Street Journal headlines around this time reflect the top concerns:

"Apple iPhone Sales Grow at Slowest Rate Ever" - WSJ, 1/26/2016
"Apple Watch Has Hurdles to Overcome" - WSJ, 4/25/2016
"The ultimate question facing Tim Cook five years into his tenure as chief executive: Are Apple's best days behind it?" - WSJ, 8/21/2016

I disagreed with pretty much every critique I heard. Yes, iPhone sales growth was undoubtedly slowing as more and more people already had smartphones, and annual iPhone unit sales actually contracted for the first time ever in 2016, but no one I knew was getting rid of their iPhone and pretty much everyone who had one was absolutely in love with it. I felt like iPhone unit sales might cease to grow but should at least remain stable due to frequent upgrades and remaining first-time buyers among young people getting their first phones, older demographics who tend to be late adopters, and markets outside the U.S.

Apple also had other paths to revenue growth beyond just iPhone. The Apple Watch had launched a year earlier, and the critique was that it didn't do much—it was slow, with the CPU throttled to preserve battery life, and lacked mobile connectivity and GPS meaning it had to be accompanied by an iPhone to have much utility. But the first iPhone didn't do much either, and all of the aforementioned flaws seemed likely to be resolved in future iterations. Not having to carry your iPhone around the house to receive notifications was almost a reason to buy one all on its own if you were going to wear a watch anyway. And with heart rate and activity tracking already in place the stage was set for the watch to grow into a capable health and fitness tracker. I recall imagining receiving FaceTime calls on my watch like I was one of the Jetsons—a dream that has yet to be fulfilled in 2025 ironically—and the possibilities seemed pretty endless.

I also felt there was likely still some innovation left in the pipeline from the Steve Jobs days as product development often takes place over several years. Plus Apple still had Jony Ive, who had been instrumental in the development of all of Apple's breakthrough products since the iMac in 1997 and was arguably just as important to Apple's product development as Jobs. A stand alone fully integrated Apple TV seemed like an obvious gap in Apple's lineup, and one that could provide significant revenue. This never came to be, possibly because Apple had a grander vision to eliminate screens all together (queue Apple Vision Pro), but I'm sure it was discussed.

Services was another potential source of revenue growth, which could create an outsized impact on earnings as software tends to have much higher margins than hardware. Apple already had a number of lucrative services, including the App Store, iCloud and iTunes, and appeared committed to expanding their offerings with the recent launches of Apple Pay and Apple CarPlay in 2014 and Apple Music in 2015.

And then there was Apple's valuation, which is what put the stock on my radar in the first place. Apple's P/E looked quite reasonable at around 11, significantly lower than its U.S. Big Tech peers, roughly half that of the broader S&P 500, and astronomically more attractive than the measly 0.2% return provided by Treasury Bills at the time. In addition, Apple had a rock solid balance sheet, with enough cash and marketable securities to pay off all of its liabilities and still have a year's worth of net income leftover, equivalent to about a tenth of the company's market cap.

It was the early days of my investing education, and most of what I knew at the time was from reading a single book on investing—The Intelligent Investor by Benjamin Graham. Graham includes a checklist for potential stock investments in the book, so I applied the checklist to Apple as a final sanity check to see how it faired. It didn't fair as well as I'd hoped. Of the 7 criteria Apple only passed 4:

Adequate Size - Sales of at least $1 billion [3] ✅
Strong Financial Condition - Current assets at least twice current liabilities and long term debt less than net current assets ❌
Earnings Stability - Earnings in each of the past 10 years ✅
Dividend Record - Uninterrupted dividend payments for at least the past 20 years ❌
Earnings Growth - At least one-third growth in 3-year average per-share earnings over the past 10 years ✅
P/E Ratio - Price not more than 15 times average earnings of the past three years ✅
P/B Ratio - Price-to-book value ≤ 1.5 or price-to-earnings × price-to-book value ≤ 22.5 ❌

I didn't understand the nuances of the checklist at the time, such as that item 7 was really intended for the deep value investments Ben Graham sought out in the 1930s and 1940s and was unnecessary and unreasonable for a modern capital-efficient business like Apple. It also didn't occur to me that since Apple had long-term marketable securities categorized as non-current assets sufficient to cover 2.6X current liabilities and 2.6X long term debt it really passed item 2 in spirit despite failing the letter of the rule. However, it did occur to me that perhaps aspects of the checklist were outdated as it was published in 1949. I shook off the doubt and went ahead and made the investment.

The Hold (2016-2024)

Validation came pretty quickly. Within a few weeks news came out that one of Warren Buffett's two investment lieutenants had purchased Apple stock for Berkshire Hathaway. AirPods made their debut during the September 2016 iPhone event—a device I had personally deeply desired for several years. Berkshire's Apple purchases continued, accelerating dramatically in late 2016 to a size that indicated Buffett himself was now behind the buying. iPhone unit sales grew 2% in 2017 followed by a 0.4% increase in 2018, to a level still 6% lower than the 2015 all-time high but encouraging nonetheless. Net sales and net income both set new records in 2018, 14% and 11% higher than their previous respective records in 2015. And the stock responded, with a 68% gain not including dividends two years later in April 2018.

The more I learned about Apple the more convinced I became that I had something special on my hands. I came to fully appreciate the importance of a business having a moat to fend off competitors, and to understand that one of the surest signs of a strong moat is the ability to raise prices without reducing demand. Apple had this in spades, and began exercising it's pricing power in a clever way, raising the price of the most expensive iPhone 70% in the three years from 2015 to 2018, while holding the price of the least expensive iPhone relatively unchanged. This left the door open for new customers who wanted an iPhone but couldn't afford the pricier models while offering increasingly higher priced premium models for those who wanted the best technology or the status of owning the latest flagship iPhone.

The more products and services Apple introduced the stronger its competitive moat grew. The iPhone has a decent moat on its own as once you become comfortable with it you are reluctant to switch to Android. But if an iPhone user also has a Mac, iPad or Apple Watch they start to really feel the stickiness of the Apple Ecosystem. These devices are designed to work together seamlessly, with iMessages, documents, photos, videos, and notes easily accessible from any of your Apple devices, and lots of little hidden benefits to discover like unlocking your Mac automatically while wearing your Apple Watch. Add in a pair of AirPods, some services like iCloud and CarPlay, and a couple iPhone accessories like a MagSafe Charger and Wallet, and the prospect of leaving the Apple ecosystem becomes an expensive and time consuming one.

If you get rid of your iPhone your AirPods won't pair as seamlessly, you'll lose most of the benefits of your MagSafe accessories, and you won't be able to use your Apple Watch as it relies on the iPhone for setup and connectivity [5]. You'll have to switch from Apple CarPlay to Android Auto, and will lose the automatic cross device data syncing of iCloud unless you take the time to move all your documents and media over to another cloud storage provider. You'll no longer be able to send iMessages, which until recently meant a number of headaches when messaging iPhone users such as low quality when sharing photos and videos, no typing indicators or read receipts, no reactions, and on and on. Say goodbye to FaceTime and get ready to download a new video conferencing app like Google Meet or Zoom and then convince your family and friends to download it as well. Add all of this up and switching becomes incredibly unattractive, especially considering there isn't another ecosystem that is objectively better.

On top of the ecosystem stickiness there is the allure of the Apple brand itself, which has been carefully curated to represent quality, artistic sensibility, creativity, playfulness, prestige, privacy and security. The Apple logo is recognized and coveted around the world, and this enviable position is not one that can be built over night. Steve Jobs is revered as an almost messiah-like figure, and this helps maintain interest in the brand by customers and employees alike. Add all of this up and the company enjoys some of the fiercest brand loyalty on the planet.

A key piece of why the Apple investment worked so well is one I didn't fully appreciate at the time of purchase and that's the power of share repurchases. When the stock price is reasonable, share repurchases are a tax efficient method to return capital to the shareholders, and provide a meaningful boost to per share earnings growth beyond what is provided by earnings growth at the company level. Steve Jobs was against both dividends and share repurchases and never issued either, instead preferring to let the cash build to ensure the company's survival. But Tim Cook felt differently, and a year after he took over as CEO in 2011 Apple began a campaign of modest dividends and aggressive buybacks. The surplus cash from the Steve Jobs days supercharged the repurchases, allowing Apple to allocate cash for buybacks and dividends beyond available free cash flow for many years.

I made one massive mistake during this period, as part way through realizing the immense strength of Apple's moat and the power of the stock repurchases I failed to buy more in late 2018 when the stock price took a hit along with the rest of the market and the P/E ratio briefly dropped down as low as 12. I realized the opportunity, and had the thought that I should probably buy more, but I wasn't flush with cash at the time having just returned to work after a year-and-a-half hiatus, and it was Christmas so I was distracted enjoying time with family and friends. Regardless, I had enough cash to add a meaningful amount to the investment and should have done so. I recall thinking well maybe the price will decline even further as the market cap is still 25% higher than my original purchase and I'll take a deeper look after the holidays. December 26th ended up being the all-time low from that point forward and I never made the investment. By dragging my feet I missed out on a +508% return assuming I would have sold the additional shares with the rest of the position in 2024 [6].

The Sale (August 2024)

Stock Price: $205.04
Market Cap: $3.114T
P/E Ratio: 31
Net Sales: $391B
Net Income: $102B
Free Cash Flow: $109B
Net Cash After All Liabilities [2]: -$112B
Gross Margin: 46%
Operating Margin: 32%
Return on Assets: 26%
Return on Equity: 165%
4-Week Treasury Bill Rate: 5.3%
S&P 500 P/E Ratio: 28

I remained pretty enamored with Apple during most of the holding period but I did note some concerning developments as time went on. Jony Ive leaving Apple in 2019 was a blow to Apple's ability to innovate and create elegant new products. The revelation that NSO Group's Pegasus spyware could discreetly access iPhone data put a dent in Apple's reputation for privacy and security. And I sensed that Apple product quality was decreasing slightly over time based on personal experience [7]. But really the decision to sell came down to three things: antitrust lawsuits against Apple and its business partners, what I perceived as an overly optimistic stock price, and Buffett selling large chunks of Berkshire's Apple position.

The antitrust lawsuits began with a series of lawsuits from the European Commission including litigation over Apple using Ireland as a tax shelter, App Store rules for third-party music streaming services giving Apple Music an unfair advantage, and restrictions on external developer access to NFC chips on iPhones limiting competition for Apple Pay. These lawsuits posed the threat of tens of billions of dollars of fines for Apple and restrictions on practices that contribute to Apple's competitive moat [8]. Then when the U.S. Department of Justice (DOJ) filed its own sweeping antitrust lawsuit against Apple in spring 2024 that really caught my attention. The lawsuit included five examples of anticompetitive conduct on Apple's part, with four of them striking me as quite convincing [9]. To make matters worse, the DOJ ruled against Google in another antitrust case in summer 2024 that put the roughly $20 billion Google is paying Apple annually to be the default search engine on Apple products at risk. This payment is basically all profit and would reduce Apple's bottom line by about 20% if it went away. All of this litigation created significant potential headwinds to Apple's net income growth.

I could accept these risks given the quality of the business if Apple was still trading at a modest P/E with the rock solid balance sheet of 2016. But both of these things had changed, with the P/E now in the 30s and the net cash position significantly degraded [10] due to the aggressive stock repurchases which had continued at higher and higher P/E ratios beyond where I thought they made sense.

Then when Buffett sold half of Berkshire's Apple holding in the second quarter of 2024 after selling 13% in the first quarter that was the final nail in the coffin. For Buffett to reverse course so dramatically and sell a company he had called "probably the best business I know in the world" just four years earlier demonstrated that something had changed in a major way in his view. My guess was he was concerned with the antitrust lawsuits combined with the rich valuation as I was. But I could imagine he also viewed the emergence of AI as a negative as it added uncertainty over whether Apple could retain its dominance in this new era of computing. There was also the possibility that he understood something I wasn't even considering. In any case, his sudden reversal pushed me past the tipping point. After a few days of contemplation, I snuck into the office bathroom at my engineering day job, and with the click of a button on my iPhone I sold the entire position.

Where did the 817% return come from?

Stock returns can be broken down into four distinct sources, and the Apple return had all four: earnings growth in the company, increase in ownership share due to stock repurchases, dividends, and P/E multiple expansion. Here's the breakdown during my holding period:

Earnings roughly doubled from $50.65B to $101.96B, making the company intrinsically worth twice as much for similar assumptions of future earnings growth [11]. This provided a 2.01X earnings growth multiplier.
Shareholders during this period enjoyed a 43.8% increase in their ownership of Apple through a 30.5% reduction in shares outstanding due to aggressive stock buybacks [12]. The stock repurchases created a 1.44X ownership share multiplier.
I elected to reinvest all of the cash Apple returned to shareholders via dividends for another 9.5% increase in ownership stake. The reinvested dividends contributed another ownership share multiplier of 1.10X.
During the holding period Apple's P/E multiple increased from 10.6 to 30.5 as investors became more optimistic about future returns and put a higher premium on Apple's current earnings. Increased investor confidence in Apple stock resulted in a 2.88X P/E expansion multiplier.

Combine the four multipliers and you get 9.17X, or an 817% return.

Of these four components the first three are what I would consider the "real return", whereas I consider the P/E expansion to be a "speculative return" component as it is based simply on the fact that investors were more optimistic about the future of Apple stock in 2024 than they were in 2016 [13]. Some of this speculative return was likely justified as Apple was more deeply entrenched in users lives in 2024 than ever before and was undervalued in my view in 2016. However, this is at least partially offset by the weaker balance sheet and significant potential headwinds due to the antitrust lawsuits.

Where things stand today

The stock price has increased 35% since I sold as of this writing in November 2025. Apple took a one-time income tax charge of about $10 billion in its fourth fiscal quarter of 2024 due to the final EU ruling surrounding its tax affairs in Ireland that hurt its bottom line that year. But there have been positive developments since including a very favorable ruling in the Google antitrust lawsuit allowing the lucrative payments Google is making to Apple to continue as well as impressive revenue and earnings growth in 2025. Plenty of antitrust pressure remains with Apple's own DOJ case looming and similar litigation ongoing globally, and there will likely be further penalties and restrictions in the coming years.

The P/E ratio is now 37 compared to 30 for the S&P 500 and Buffett has continued to sell with the position down to 23% of its peak at the end of 2018. The future is far from clear. Apple remains an exceptional business, but if I still held the stock today I would likely sell tomorrow, and I would be just as unsure about that decision as I was a year ago when I reluctantly let go of my most prized holding.

[1] Adjusted for 4-for-1 stock split in August 2020

[2] Cash and Cash Equivalents + Marketable Securities - Total Liabilities

[3] 2016 equivalent of $100 million in 1971 when the fourth edition of The Intelligent Investor was updated by Graham is closer to $800 million but rounded up to $1 billion for simplicity

[4] Includes Apple Watch, AirPods, Beats products, HomePods, Apple TV, and the iPod until it was quietly discontinued in 2022

[5] For non-cellular models

[6] Assumes reinvestment of dividends

[7] Most notably issues with AirPods and HomePods iPhone pairing. This observation is in contrast with Apple's disclosure of customer satisfaction survey results from 451 Research which show customer satisfaction unchanged or improving slightly from 2016-2024, but they only disclosed survey results for iPhone, Mac, iPad and Apple Watch, not AirPods or HomePod.

[8] The 30% fee on in-app App Store purchases is under pressure both in Europe and the U.S. with Apple responding in late 2020 by reducing the fee to 15% for small businesses earning up to $1 million per year. In 2021 a U.S. District Judge ordered Apple to stop prohibiting developers from linking out of their apps to provide an alternative way to pay for digital content. In March 2024 the European Commission gave Apple a $2 billion fine for not allowing developers to direct users to leave apps to make purchases. Apple announced that they were adding Rich Communication Services (RCS) messaging support to their devices in June 2024 to improve the messaging experience between Apple devices and non-Apple devices devices due to pressure from regulators and competitors.

[9] Restricting cloud streaming games (policy changed in early 2024), limitations on using third party smartwatches with iPhone and Apple Watch with other smartphones, restricting third party digital wallets access to the NFC chip on iPhone, and prohibiting third-party apps from sending or receiving carrier-based messages

[10] Net cash in 2016 was $152B representing 28.5% of the market cap at purchase vs. net cash in 2024 of $50B representing 1.6% of the market cap when sold

[11] The intrinsic value of any company is the sum of all future cash flows discounted back to present value, so all items on the balance sheet would need to double as well for intrinsic value to truly double

[12] Shares outstanding were interpolated for purchase and sell dates based on nearest reported quarterly values. Shares outstanding were estimated to be 21,839,982,144 on date of purchase and 15,187,455,467 on date of sale. The shares outstanding at purchase was adjusted for the 4-for-1 stock split in August 2020

[13] The stock repurchase component in this case is not entirely "real" since Apple funded the repurchases in part with cash it already had and therefore the increased shareholder ownership of Apple's future cashflow is partially offset by the reduced cash position

This essay is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as legal, tax, investment, financial or other advice.