Story by Theron Mohamed |Business Insider|Warren Buffett’s Apple bet has surged in value by almost 40% this year to $158 billion — an astounding 22% of Berkshire Hathaway‘s entire market capitalization of $720 billion.
The legendary investor and Berkshire CEO waved away concerns that the wager is now disproportionately large during his company’s annual shareholder meeting on Saturday.
He laid out five reasons why he’s more than happy with the size of the investment, and not worried about being over-concentrated in a single stock. They ranged from Apple’s business model and brand power to its predictability and penchant for stock buybacks.
Apple of his eye
Berkshire spent about $36 billion between 2016 and 2018 to amass a 5.4% stake in Apple. It cashed out around 9% of the position in 2020, lowering its cost base to $31 billion. It has only tweaked the holding since then, meaning it’s made roughly five times its money on paper.
Buffett’s first defense of its stake in the iPhone maker — by far the biggest position in its stock portfolio — was that it’s not that large if you look at Berkshire as a whole.
“Apple is not 35% of Berkshire’s portfolio,” he said. “Berkshire’s portfolio includes the railroad, the energy business, Garanimals, you name it, See’s Candy.”
In other words, Buffett views Apple as just one of Berkshire’s many business interests. Those range from stakes in public companies like Coca-Cola and Kraft Heinz, to its wholly-owned subsidiaries like Geico, Duracell, and the BNSF Railway.
The investor’s second response to claims he’s over-indexed in Apple stock was to say that it’s a superior company to every single one of Berkshire’s subsidiaries.
“It just happens to be a better business than any we own,” he said. “Our railroad is a very good business. It’s not remotely as good as Apple’s business.”
Buffett also underscored another benefit to holding Apple stock: share repurchases. The tech titan’s stock buybacks have boosted Berkshire’s ownership from 5.4% at the end of 2018 to 5.8% today, without Buffett and his team having to spend a dime.
“The good thing about Apple is that we can go up,” he said.
The Berkshire chief noted an additional part of Apple’s value is its appeal to customers. He gave a theoretical example of someone having to choose between parting with a second car worth $35,000, or their $1,500 iPhone.
“If they had to give up a second car or give up their iPhone, they give up their second car,” he said.
Finally, Buffet contrasted his confidence in Apple’s medium-term outlook with his deep uncertainty about the US auto industry’s prospects.
“I think I know where Apple is going to be in five or 10 years,” he said. “I don’t know where the car companies are going to be in five or 10 years.”
Buffett has highlighted some of Apple’s other strengths in the past. For example, he’s praised CEO Tim Cook’s management skills and global knowledge, and underlined the huge amount of value and utility that Apple devices offer its customers.