Buffett And Apple -- May 3, 2024

Locator: 47046BUFFETT.

Apple and Buffett without Munger. Link here to WSJ. 

Apple is Warren Buffett’s greatest investment. It has also become one of his riskiest.

In 2016, Buffett made perhaps the most surprising bet of his career. That year, Berkshire Hathaway, the company he runs, began buying up shares of Apple—the exact kind of stock Buffett and his longtime partner, Charlie Munger, had long avoided.

A few years earlier Buffett, in a conversation with executives of another firm, had suggested that Apple fit the profile of a stock one might short, rather than a company to buy, according to someone close to the matter. Buffett says he doesn’t recall the conversation and over the past 50 years, “I have never recommended any stock to be shorted and always advise people not to short stocks.”

In 2013, Munger told Reuters: “You could hardly think of another business that is more un-Berkshirelike than Apple.”

Yet working with protégés, Buffett soon transformed into an Apple bull in a remarkable about-face. After an initial purchase of nearly 10 million shares worth about $1 billion in 2016, Berkshire added to its holdings later that year and then stepped up its buying in 2017 and 2018, spending about $36 billion on the stock over those years. Berkshire later trimmed some of those holdings.

By the end of the third quarter of 2018, Berkshire’s Apple stake represented about a quarter of its entire investment portfolio. In dollar terms, it was twice as large an investment as Buffett had previously made.

The move has paid off, in a very big way. Today, Berkshire’s 5.9% stake in Apple is worth about $157 billion, even though Apple has fallen lately. Berkshire is sitting on about $120 billion in paper gains, likely the most money ever made by an investor or a firm from a single stock. Nothing in Buffett’s long career comes close. Apple stock represented nearly 50% of Berkshire’s stock portfolio at year-end.

My hunch: a lot of folks would argue whether Apple is now a risky stock. 

KO is considered one of Warren Buffett's best holdings ever. Hold that thought.

Apple has had an atrocious year. Six quarters of consecutive decreasing revenues. Needs to be fact checked. And yet this past year, AAPL has greatly outperformed KO in the stock market. Over five years, no comparison. Apple has returned 258%; KO has returned a paltry 25%. 

And yet I haven't heard anyone say KO is a risky stock. Whether or not KO is risky, it sure has been a lousy stock except for the dividends. 

KO's market cap after all these decades? $270 billion. Apple, much younger, $3 trillion.

 

Why is Apple so risky for Buffett? Because his portfolio is no longer diversified. Close to 60% of his equity portfolio is now due to AAPL. [By the way, "diversification" is a whole 'nother issue. If you know what you are doing and have great "faith" in your decisions, why is "diversification "the end all and be all" for so many investors.]

So, how does Buffett mitigate that risk? Forget about AAPL; let it run on auto-pilot. Let his shareholders know with no uncertainty that AAPL is a long term holding and he will hold it regardless of what the stock does over the next several years. 

Forget about AAPL and concentrate on growing the rest of his porftolio so that someday, perhaps in five years, his Japanese holdings will be equal to the value of his Apple holdings.