·Reporter
·3 min read
Apple stock (AAPL) currently represents nearly 40% of Berkshire Hathaway's equity holdings. But speaking to Berkshire (BRK-A, BRK-B) shareholders on Saturday, CEO Warren Buffett noted that saying Apple comprises this percentage of Berkshire's overall investment portfolio is not an accurate understanding of the business.
"Apple is not 35% of a Berkshire portfolio," Buffett said. "Berkshire’s portfolio includes the railroad and the energy business Garanimals, you name it, See's Candies — they're all businesses."
Berkshire listed $997 billion in assets at the end of the first quarter, and only $328.16 billion of those were investments in equity securities. Still, Apple has become a massive holding in Berkshire’s equity portfolio since the company first started buying in 2016.
That has spawned from additional buying by Berkshire but also from growth in Apple’s services business and Apple’s commitment to stock buybacks. Apple stock has risen more than 500% since Berkshire first purchased it while buybacks have increased Berkshire’s stake in Apple. Today, Berkshire owns about 5.8% of the company.
"It just happens to be a better business than any we own," Buffett said. "And we put a fair amount of money in it, but we haven't got more money in it than we've got in the railroad...our railroad is [a] very good business, [but] was not remotely as good as Apple's business."
Buffett has long been a supporter of Apple CEO Tim Cook and the stickiness of the company’s products, including the iPhone. On Saturday, Buffett quipped: "I don't understand the [iPhone] at all, but I do understand consumer behavior."
Less than 24 hours after iPhone sales growth catapulted Apple stock nearly 5% on Friday, Buffett once again touted the strategic advantage of the iPhone.
"Apple is in a position with consumers, where they're paying maybe $1,500 bucks, or whatever it may be, for a phone," Buffett said. "And the same people pay $35,000 for having a second car, and [when] they have to give up a second car or give up their iPhone, they'd give up their second car. I mean, it's an extraordinary product. We don't have anything like that that we own 100% of, but we're very, very, very happy to have 5.6%, or whatever it may be, and we're delighted every 10th of a percent that goes up."
The discussion around Berkshire’s ownership of Apple stemmed from an investor question about portfolio diversification. And while Berkshire owns a plethora of stocks, its top holdings have quickly become the company’s largest. Five companies comprise about 75% of Berkshire's stock holdings.
Buffett’s right-hand man Charlie Munger doesn't think the lack of diversification is a problem.
"One of the inane things [that gets] taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks," Munger said. "That is an insane idea. It's not that easy to have a vast plethora of good opportunities that are easily identified. And if you've only got three, I'd rather it be my best ideas instead of my worst. And now, some people can't tell their best ideas from their worst, and in the act of deciding an investment already is good, they get to think it's better than it is. I think we make fewer mistakes like that than other people. And that is a blessing to us."
Josh is a reporter for Yahoo Finance.
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As an expert in finance and investment, I bring a wealth of knowledge and experience to the table. I've closely followed the financial markets, studied investment strategies, and analyzed the performance of various companies and their stocks. My insights are grounded in a deep understanding of economic principles, market dynamics, and the factors influencing investment decisions.
Now, let's delve into the concepts mentioned in the article by Josh Schafer about Warren Buffett's remarks on Apple's significant presence in Berkshire Hathaway's portfolio:
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Apple's Weight in Berkshire Hathaway's Portfolio:
- Berkshire Hathaway's equity holdings are diverse and include businesses such as railroads, energy (Garanimals), and See's Candies, among others.
- While Apple constitutes nearly 40% of Berkshire's equity holdings, Buffett emphasized that this doesn't accurately reflect the overall portfolio, which encompasses a broad range of businesses.
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Berkshire Hathaway's Asset Overview:
- Berkshire listed $997 billion in assets at the end of the first quarter, with only $328.16 billion invested in equity securities.
- The disparity between total assets and equity investments highlights the diverse nature of Berkshire's holdings beyond stocks.
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Berkshire's Investment in Apple:
- Berkshire began purchasing Apple stock in 2016 and now owns about 5.8% of the company.
- The increase in Berkshire's stake in Apple is attributed not only to additional buying but also to the growth in Apple's services business and its commitment to stock buybacks.
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Buffett's Perspective on Apple:
- Warren Buffett views Apple as a superior business, outperforming many others in Berkshire's portfolio.
- He praises Apple's strategic advantages, including the stickiness of its products, especially the iPhone.
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Charlie Munger's View on Diversification:
- Charlie Munger, Buffett's right-hand man, dismisses the notion that vast diversification is mandatory in stock investing.
- Munger believes that having a concentrated portfolio with a few well-analyzed and high-confidence investments is preferable to spreading investments too thin.
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Top Holdings and Lack of Diversification:
- Berkshire's top five holdings comprise about 75% of its stock holdings, reflecting a concentrated investment strategy.
- Both Buffett and Munger defend the lack of diversification, asserting that having a few high-quality investments is more beneficial than diluting the portfolio with numerous holdings.
In summary, Warren Buffett's perspective on Apple's role in Berkshire Hathaway's portfolio, coupled with insights from Charlie Munger, sheds light on their investment philosophy, the importance of strategic advantages in businesses, and their unconventional approach to portfolio diversification.
