He’s faced sharp criticisms against his investment style over the last ten years or so. The S&P 500 acts as the benchmark measurement of the overall stock market – throughout this last decade, its gained 197%. Berkshire Hathaway, on the other hand, has gained “just” 151% – making the portfolio appear underperforming by 46 percentage points.
But Buffett is know for thinking long term – and ten years isn’t that long when gauging investment performance.
Buffett Has Had a Bad Year So Far
It’s no secret – Buffett has faced a bad 2020 in terms of his investments. That is, until now. The golden child of the S&P – Apple – just earned Buffett the warrior status he’s best known for. And has more than made up for what many analysts consider a year of tragic missteps for the investor.
Investors are worried about Apple’s weighting in the S&P. Apple stands at a 6.4% weighting – greater than any of the other single stocks in the index. And this includes such heavy hitters as Microsoft (5.8%) and Amazon (4.9%).
Sure, Buffett has tripped and skinned his knees on some of the S&P 500 bets he’s made. In June, Buffett’s stake in Bank of America was down 29% – over $10 billion. His other losses included:
But these losses are nothing compared to Apple’s gains.
Berkshire Hathaway’s public portfolio as of June 2020 was up more than $600 million – in large part due to his shareholding in Apple.
Buffett Bit the Apple (And Won)
June’s profit report showed Apple soared an incredible 49% for the first half of 2020. If this trend continues, Apple isn’t far from striking a prized market value of $2 trillion. This is fantastic news for Buffett’s Berkshire Hathaway – over 45% of BH’s portfolio is all-in on Apple.
So, what does this look like on paper? Just since May 1, 2020, the Berkshire Hathaway valuation is up $36 billion. This is an extremely important date – this is right around the time that Buffett quickly got out of his shares of airline stock.
And Apple’s portion of this increased valuation? Nearly the entire uptick! Buffett gained $35 billion in Apple alone. Apple is also the only holding in the Berkshire Hathaway portfolio that rose by double digits for the year.
Buffett famously focuses on fundamentals, which justifies Apple’s huge gains.
Berkshire Hathaway Valuation vs Apple
Buffett’s stake in Apple ($100 billion) is roughly 20% – or one-fifth – of Berkshire Hathaway’s overall market cap at the time of press.
While this is exciting news for investors and Apple, it poses concerns about the Berkshire Portfolio overall. As of the company’s most recent March 31, 2020 SEC filing, Berkshire Hathaway owned around 245 million shares of Apple.
From the date of the filing through June, shares of the tech giant soared by nearly 45%. March 2020 stock prices for Apple were around $254 per share and soared to $366 for June.
By early August, Apple stock prices had again risen to close at $444 per share. For the period between March and June, Berkshire Hathaway stock slid a percentage point.
Buffett first began to build a stake in Apple in 2016. He now owns over 250 million shares, which equates to nearly 6% of all outstanding Apple shares. To stake his claim in Apple, Buffett invested an initial $35 billion in 2016. That stake has grown following Apple’s most recent operations results, swelling Buffett’s stake to over $106 billion.
Let’s put this four-year jump into context.
Buffett has earned more than $71 billion by simply buying and holding his shares of Apple. This doesn’t take into account the dividends Berkshire Hathaway receives, which could top out over $822 million just for Fiscal Year 2020.
Counting both his realized and unrealized gains – this could push Buffett over the $73 billion mark for 2020 alone.
And to further put this into perspective – in these four short years, Buffett’s made more on his Apple shares than on the market capitalizations of 417 of the S&P 500’s 500 companies.
Still not crazy enough? Check this out – Apple is now almost 46% of his entire invested assets. As of recently, Buffett’s entire portfolio of 46 securities was worth over $234 billion and Apple accounts for over $106 billion of that. Buffett doesn’t believe in diversifying and it’s obvious.
The Trading Lesson – All You Need is One Good Apple
While Buffett may not believe in diversification, diversifying your portfolio is a key to successful investing, especially – according to Buffett – if you don’t know what you’re doing.
But Buffett clearly demonstrates with his Apple positioning that it only takes one good apple – pun clearly intended – to make your entire portfolio. His entire investment strategy is surprising, but it works.
He’s been beyond successful by just buying and holding various businesses. But maybe the most surprising aspect of the Berkshire Hathaway portfolio is its lack of diversification.
So, examining Buffett’s stock strategy, you’ll find:
- Total of 47 securities, some which are differently classed stocks of same company
- High concentration in just three different sectors plus five singular stocks
- Over 47% of investments are in the financial sector
- Information technology represents over 24% of investments
- Consumer staples, such as life and car insurance, make up over 15% of the portfolio
Probably due in part to the current coronavirus pandemic, consumer staples in the Berkshire Hathaway portfolio is at an 18-year low as of the most recent reporting quarter.
Will Berkshire Hathaway End the Year in the Black?
How the BH portfolio will fare for the rest of 2020 remains to be seen. Let’s examine the following:
- The portfolio’s stock price is down 14% for 2020
- Apple share prices are up 49%
- The S&P 500 hasn’t moved at all for 2020
So, Berkshire Hathaway could end 2020 in the black if:
- Apple share prices continue to rise
- Stocks in the Berkshire Hathaway portfolio begin to rebound
- Buffett buys back some of his own stocks
What do think? Where do you see Buffett and Berkshire Hathaway headed?
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.