A person who used a flip phone till 2020; a person who was personally convinced by Apple CEO Tim Cook to join the Apple revolution, which he declined at first, by the way, is one of the top five shareholders in Apple now.
Berkshire Hathaway started making positions in Apple largely in the midst of 2016–18. The numbers are massive here. Warren Buffett acquired a 5.4% stake in Apple for $32 billion at a valuation of $720 billion. Jump to 2022, the initial $36 billion investment has quadrupled amounting to a massive $160 billion investment.
Let Berkshire Hathaway’s numbers do the talking
The dividends received by Berkshire Hathaway were $775 million after selling $13 billion worth of shares. The stake cost the conglomerate $36 billion, which was worth $160 billion when Apple's market capitalization hit the $3 trillion milestone. The stock rallied by 7% which immensely benefited Berkshire Hathaway to acquire such results. Berkshire’s Apple stake now makes up for more than 40% of its equity portfolio.
By the decree of retail investors, we want to see Warren’s holdings.
Bank of America - valued at $45 billion and comprising 13.6% of his portfolio as of Q1 2022
American Express - occupying 7.5% of the portfolio valued at $24.8 billion as of Q1 2022
Coca Cola - valued at roughly $23 billion and holds 7.2% of the Berkshire Hathaway portfolio
These were his top 3 most valued stocks with the highest portfolio concentrations.
What has Warren Buffett been buying recently?
In the first quarter of 2022, Buffett's Berkshire increased his stake in Chevron (CVX) by 316%, also buying a big stake in Occidental Petroleum (OXY) in a possible bet that oil prices will stay elevated. Berkshire also added a major stake in Activision Blizzard, a gaming giant which surprisingly got acquired by Microsoft after Warren’s investment. Insider trading? maybe HA! He also invested in HP and Chevron.
Still, the Apple investment has been his most valued and concentrated investment but it was not always the same.
The Irony of investing in Apple
The irony here is that the 91-year-old investor always opted out when it came to investing in technological companies. Reasons for this are —
Buffet said, “What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” Being friends with Bill Gates, Warren never invested large chunks of money in Microsoft. Buffett was very comfortable and familiar with insurance, consumer goods, banking, etc companies and believed that tech was not his forte.
At Berkshire’s annual general meeting in 2012, he said he’d never buy Apple or Google because he “just didn’t know how to value them.”
In 2011, Buffett took positions in IBM which later didn’t play out well for the billionaire investor. Buffett believed that IBM makes software and everyone requires software. He was wrong and his $10bn investment crashed about 20%.
Buffett also had an aversion for tech stocks as he believed they are vulnerable to crashes and frequent technology changes.
So what made Warren Buffett change his mind and invest in Apple?
Berkshire Hathaway had 2 brilliant hedge fund managers. The 2 men they hired — Todd Combs and Ted Weschler — were both former hedge fund managers and joined Berkshire Hathway. It is said that these 2 played a decent role in convincing Buffett to invest in Apple. The key they used to unlock Buffett’s mind was ‘Monopolies’.
Buffett loved Monopolies. Here is the chart showing monopolies in which Berkshire Hathaway has large positions -
- Buffett quickly realized the game played by Apple. Apple didn’t just create some smartphones or PCs, they created an environment of integrated products. They created an ecosystem. Buffett said, “Once you are fully invested in the [Apple] App ecosystem and you have got your thousands of photographs up in the cloud and you are used to the keystrokes and functionality and where everything is, you become a sticky consumer.”
- Buffett was insouciant about the financials of Apple. Apple was a cash cow with extra cash, massive sales, potent pricing power, robust demand and great cashflows. There are more than 1B active iPhone users and these customers have tacked on an additional 100m+ wearable devices. Over the same span, Apple’s App Store gross revenue has grown from $20B to $85B.
In 2018, he told CNBC “Apple has an extraordinary consumer franchise. I see how strong that ecosystem is, to an extraordinary degree. You are very, very, very locked in, at least psychologically and mentally, to the product you are using. [iPhone] is a very sticky product.”
An incident which made Buffett realize the connection Apple embeds with its customers was of an early investor and Board of Director of Berkshire Hathaway - David "Sandy" Gottesman suffered a severe loss when his iPhone jettisoned out of his pocket during a taxi ride in 2016. "I felt like I lost a piece of my soul," he told Ted Weschler, who is a close associate of Warren. Weschler reportedly shared Gottesman's iPhone story with Warren Buffett, who was surprised to learn that one of his friends was so fascinated with the device at his age. And the rest is history.
The Bottom Line
During a CNBC interview, Buffett said the iPhone maker is “probably the best business I know in the world.” He also told Bloomberg Businessweek, “Tim may not be able to design a product like Steve but Tim understands the world to a degree that very, very few CEOs I’ve met over the past 60 years could match.”
Warren Buffett and his investments definitely make a splash in the investor environment. Wouldn't you like a peek at the mind of the "Oracle of Omaha"? Head over to Quest by Finology's Buffettology to learn about the investing genius' mental model.
Steve would definitely be proud of Apple.