The way to make big money

Over the past 15 years, Apple's stock has surged 23 times.

This article attempts to answer one question:

Why do so many people know about good companies, yet very few people actually make huge money from them?

The answer roughly falls into seven steps:

1. Great business: The business model itself can generate sustainable profits.

2. Great culture: The management team can consistently make the right decisions in the long run and avoid reckless spending.

3. Sustainable value creation: Either continue reinvesting at high rates of return, or steadily generate massive amounts of cash.

4. Sound capital allocation: Share repurchases, dividends, mergers and acquisitions, and seasoned equity offerings are all just tools, and the core lies in opportunity cost.

5. Reasonable price: Even good companies can be overpriced when you buy them. First assess how much positive expectation has already been priced into the stock.

6. Sufficient position size: Being right but only putting in a tiny position cannot change the magnitude of your wealth.

7. Sufficient time: Truly large gains usually come from a small number of correct decisions compounding over a long period of time.

Apple's stock price has risen to roughly 23 times its level 15 years ago, which serves as a perfect case study.

But what this article really wants to discuss is not Apple itself, but:

How to identify the small number of companies truly worthy of long-term bets, and after you fully understand them, allocate a large enough position and hold it long enough.

A popular narrative about Apple has been circulating recently: In the 15 years under Tim Cook's leadership, the biggest product he has left behind is a share repurchase machine.

Apple has spent nearly $900 billion buying back its own shares, reducing its outstanding share count by more than 40%. As a result, long-term shareholders barely need to do anything, and each share they hold automatically represents a larger stake in Apple.

This narrative is very appealing, because the investment world has a particular preference for vivid, simple cause-and-effect relationships.

When a company's stock price rises 23 times, we always want to find that magic button: products, brand, Steve Jobs, Tim Cook, ecosystem, share repurchases, or the currently trendy AI.

But long-term stock returns rarely come from a single button; they are more like a multiplication problem.

What is truly worth studying about Apple over the past 15 years is how this great company, behind the 23x return, has translated its business model, corporate culture, capital allocation, per-share value, and market expectations step by step into wealth in its shareholders' accounts.

After breaking down this problem, the question we ultimately need to answer remains the more difficult and far more important one:

How to find truly great companies and actually make huge money from them.

I. The Myth of 23x Returns

In fiscal 2011, Apple posted revenue of $108.2 billion and net profit of $25.9 billion. By fiscal 2025, its revenue had reached $416.2 billion, with net profit hitting $112 billion; if we look at the trailing 12 months ending at the end of June 2026, its net profit stands at roughly $129 billion.

In other words, in the 15 years after Tim Cook took over, the amount of money Apple earns in a single year has roughly multiplied by 5.

A 5x increase is already quite astonishing, but it is far from enough to explain why the stock price has risen 23 times.

The most common point of confusion here is that "the company getting bigger" and "the stock price rising" are not the same thing at all.

When Tim Cook took over in 2011, Apple had a market capitalization of roughly $350 billion, and that figure now stands at around $4.5 trillion. The total market value of the entire company has grown roughly 13 times; meanwhile, its split-adjusted stock price has climbed from around $13 to roughly $310, representing a roughly 23x increase.

5x profit growth, 13x market capitalization growth, 23x stock price growth.

The 5x expansion in net profit from 1 to 5 is primarily the merit of the business itself. Apple has sold more products, gained more users, and its services business has continued to expand. The entire company is indeed earning far more money than it used to. This is the first set of accounts, which I call the enterprise account.

But profit only grew 5x, so why did market capitalization rise 13x? Because the market's perception of Apple has also changed.

In 2011, Apple traded at roughly a dozen times earnings, while today its P/E ratio stands above 30. The market used to largely view it as a hardware company highly reliant on hit products, but now it is willing to treat it as a far more stable, durable cash machine with strong ecosystem stickiness.

The company not only earns more money, but the market also assigns it a higher valuation. This is the second set of accounts, the market account.

Next comes a detail that is easily overlooked: if the entire Apple company only grew from $350 billion to roughly $4.5 trillion, a roughly 13x increase, why has a single share of Apple risen 23 times?

The answer lies in the denominator.

Around 2011, Apple's split-adjusted share count stood at roughly 26.2 billion shares, and now that number is only around 14.6 billion. Over the past 15 years, Apple has continuously used its cash to buy back its own shares and then cancel them.

The result is that as the total corporate pie grows larger, the number of people sharing that pie keeps shrinking. Holding one share of Apple today means your ownership stake in the company is roughly 1.8 times what it was back then.

This is the third set of accounts, the shareholder account.

As a result, Apple's 23x return can finally be written as a very simple multiplication formula:

Stock price = Corporate net profit ÷ Number of shares outstanding × Market-assigned valuation.

Roughly 5x profit growth, multiplied by roughly 1.8x ownership concentration, multiplied by a more than 2x valuation expansion, finally adds up to the more than 20x rise in stock price.

Over the past 15 years, Apple's shareholders have essentially earned three types of returns at the same time: returns from the company becoming more profitable, returns from shares becoming scarcer, and returns from the market being increasingly willing to pay a premium for Apple.

These three types of returns are completely different in nature.

The first comes from operations. The second comes from capital allocation. The third comes from market expectations.

The most common mistake investors make is mixing these three types of returns together.

Seeing the stock price rise 23 times, they assume the company's business performance has also improved 23 times;

Seeing Apple's large-scale repurchases, they assume the 23x return is mainly the result of "denominator magic";

Seeing a great company's stock price rise, they mistake valuation expansion for an improvement in corporate capabilities.

The real secret is the multiplication of all three factors above.

There is one more factor not factored in. If you add all the cash dividends Apple has paid out over the past 15 years and the returns from reinvesting those dividends, long-term shareholders' total returns will be even higher.

Apple's story is not very common for most of our domestic companies. But I believe the evolution of business has a positive, upward trajectory.

Perhaps our retail investors will also have the opportunity to enjoy returns of a similar structure.

Apple over the past 15 years tells us that what stock investing ultimately cares about is never the total amount of money a company earns.

Instead, it is:

Of all the money the company earns, how much ultimately belongs to that single share in your hand.

What investors buy is not a huge positive catalyst, not revenue, and not market capitalization.

What you buy is the tangible rights and interests corresponding to one single share.

II. Corporate Growth Does Not Equal Stock Price Growth

How much a company's revenue grows, how much its profit increases, how many users it adds, and how much its market share expands are all important, but they do not automatically translate into growth in shareholder wealth.

Assume that Company A posts 10% annual net profit growth, but issues 6% new shares every year for employee incentives and M&A financing. Over the long run, the growth attributable to each individual share may only be around 4%.

Company B sees total profit grow by only 5% annually, but cancels 3% of its shares each year. Its per-share profit growth may end up close to 8%.

Media outlets will label Company A a growth company and Company B a mature company, but shareholder returns are never that simple.

So the real question to ask is not "How much can the company grow in the future?", but:

How much growth can my one share achieve in the future?

This is also why when researching share repurchases, what is most worth looking at is often not the "$1 trillion repurchase plan" in the press release, but the diluted share count over the past five or ten years.

If a company spends huge sums of money but its share capital does not decline, its so-called repurchases are most likely essentially absorbing shares sold by employee equity incentive holders; only when net share capital keeps declining can existing shareholders' ownership percentage truly increase.

Jesse Fried from Harvard Law School and Charles Wang from Harvard Business School once conducted research on the popular narrative that "U.S. listed companies use all their profits for repurchases, thus draining capital from real economy investments".

From 2007 to 2016, S&P 500 companies did repurchase roughly $4.2 trillion worth of shares and paid out roughly $2.8 trillion in dividends, seemingly returning almost all their profits to shareholders;

But over the same period, these companies raised roughly $3.3 trillion in new capital through share issuances. When you account for both directions of capital flow, the narrative that "companies are draining all their money out of the business" is far from that simple.

As for the A-share market, the situation is even more self-explanatory.

So there is a very practical principle:

Look at net share capital, not repurchase amount.

But even if share capital does decline, that is still far from enough.

III. The Essence of Share Repurchases Is Investment

When a company spends 100 billion yuan buying its own stock, in essence it is no different from spending 100 billion yuan acquiring another company: the management is purchasing an asset on behalf of shareholders.

Since it is an investment, the first thing to consider is of course the price.

Warren Buffett noted in his 2016 letter to shareholders:

For remaining shareholders, share repurchases will only increase the intrinsic value per share when the repurchase price is lower than the intrinsic value of the stock;

And he specifically reminded that even if the stock is undervalued, if the enterprise itself needs capital for expansion or has other investment opportunities with higher returns, repurchases should not be prioritized.

This essentially covers the two most important concepts in capital allocation: price and opportunity cost.

In 1995, Ikenberry, Lakonishok, and Vermaelen published a study in the Journal of Financial Economics examining U.S. open market share repurchases between 1980 and 1990.

All samples posted an average abnormal buy-and-hold return of 12.1% in the four years after the repurchase announcement;

But when they grouped companies by valuation, the "value stocks" that were far more likely to repurchase shares because they were undervalued delivered a 45.3% abnormal return over four years;

In contrast, high-valuation "glamour stocks" did not see a similar positive drift.

This does not mean that "repurchases at low P/E ratios guarantee profits", but it at least tells us:

Share repurchases themselves have no magic. Price discipline does.

With the same $1 trillion, the percentage of the company you can buy at a P/E ratio of 10 is far larger than what you can buy at a P/E ratio of 35.

As a result, a long-term shareholder of a company that keeps repurchasing shares will arrive at a very counterintuitive conclusion:

As long as the fundamentals do not deteriorate, he does not necessarily want the stock price to rise immediately. The cheaper the stock price, the more ownership the company will buy back on his behalf in the future.

For reasons like this (among others), from the end of 1925 to the end of 2023, in the U.S. stock sample counted by Bessembinder, the company with the highest cumulative compound return is Altria, formerly known as Philip Morris, a tobacco company. Because it was shunned by the market, the company traded at a low valuation for a very long time.

Low valuation plays a dual role here. First: you buy at a cheap price. Second: for decades after that, every repurchase the company makes and every time you reinvest your dividends, you are also buying at a cheap price. The market's aversion created a cash return amplifier, which stacked up to produce astonishing compound returns. A similar logic can also be applied to our domestic companies. Some people worry that Prosus's continuous reduction of its holdings will suppress Tencent's stock price. From another perspective, if this continuous supply keeps the stock price far below its intrinsic value over the long term, while Tencent itself is conducting large-scale repurchases, the low stock price will actually improve repurchase efficiency.

Buffett used IBM to explain this exact logic back in 2011. He wrote that if IBM planned to spend roughly $50 billion repurchasing shares in the following years, Berkshire Hathaway, as a long-term shareholder, should actually hope that IBM's stock price stays depressed, because the same amount of money can cancel out far more shares.

However, even the Oracle of Omaha learned a harsh lesson from this seemingly sound "logic".

IV. No Matter How Good the Denominator Is, It Cannot Save a Shrinking Numerator

IBM did keep repurchasing shares, and its share count did decline, but its operating fundamentals deteriorated over the long run. Buffett eventually admitted his judgment was wrong and exited his IBM position.

This perfectly serves as the most necessary antidote to the "undervalued repurchase" narrative.

Because "low price" is not an independent fact. A stock falling from $200 to $100 could be Mr. Market acting irrationally, or it could be that the company's intrinsic value has truly dropped from $200 to $80. Only in the first scenario do low-price repurchases truly create value.

Determining which scenario you are in is the hardest task in investing.

So the statement that "long-term shareholders should prefer low stock prices" must come with a prerequisite:

The prerequisite is that you have not misjudged the company's intrinsic value.

IBM teaches us that:

No matter how fast the denominator shrinks, it cannot save a continuously shrinking numerator.

Share repurchases cannot work miracles. They simply divide the remaining company among fewer people. If what remains is an ever-growing pie, that is certainly great; if what remains is a constantly shrinking pie, having fewer people to split it will not change the final outcome.

Bed Bath & Beyond presents an even more extreme case. From 2004 to fiscal 2022, the company spent a cumulative total of roughly $11.7 billion repurchasing its own shares, and its share capital kept declining for a long time, before it filed for bankruptcy protection in 2023.

This case has almost become a cruel fable of the capital markets:

When share capital shrinks to the very end, a single share can still be worth nothing.

So "a declining share count" is only one possible condition for per-share value growth, and it is never value itself.

V. The Option Value of Cash

Capital allocation also has a frequently overlooked dimension: the balance sheet.

A company that returns large amounts of cash to shareholders at the peak of its prosperity, when cash is most abundant, appears to have high capital efficiency;

But