Todd Combs would often have breakfast with Buffett on Saturday mornings. According to a WSJ article, around 2016, Buffett challenged Combs to find a stock that met specific criteria.

This time, Buffett asked Combs to identify a stock in the S&P 500 that met three criteria. The first: a reasonably cheap price/earnings multiple of no more than 15, based on the next 12 months’ projected earnings. The stock also had to be one the managers were at least 90% sure would enjoy higher earnings over the next five years. And they had to be at least 50% confident that the company’s earnings would grow by at least 7% annually for five years or longer.

What made the search a little more difficult was that the companies that met the criteria also had to have a market cap large enough so Berkshire could buy enough of to move the needle of its portfolio but not overly impact the demand for the stock. This specific framework led them to repeatedly identify Apple in their discussions. (Apple was trading at a reasonable valuation at the time, unlike its current P/E).

As an aside, just four years earlier this is what Buffett had to say about Apple and Google 😉

Asked why he had bought IBM shares rather than Apple or Google at Berkshire Hathaway’s 2012 shareholder meeting, Buffett said: “The chances of being way wrong in IBM are probably less, at least for us, than the chances of being way wrong in Google or Apple ... I just don’t know how to value them.“I would not be at all surprised to see them be worth a lot more money 10 years from now but I would not buy either one of them. I sure as hell wouldn’t short them either.”