How Much Did Berkshire Spend on Apple?

Indeed, the Oracle of Omaha’s perennial philosophy centered around the idea of understanding a business entirely before moving in to buy – and tech firms just weren’t his forte.

 

While that approach worked perfectly well for the first 50 years that Buffett controlled his Nebraska-based holding company, Berkshire Hathaway (BRK.A), it became increasingly evident to both himself and his investment team that in the new economy, an aversion to tech-related enterprises was no longer viable.

In fact, tech companies had begun to provide excellent returns for investors again since the aftermath of the dot-com bubble and were key players at the front line of corporate America’s newfangled resurgence. Wall Street rewarded these businesses with high valuations, and plenty of hedge funds and private shareholders became very rich.

 

However, having to watch this renaissance from the sidelines must have been galling for Buffett and Berkshire. And so, in 2016, they reassessed this informal moratorium and decided to open a position in the American technology and consumer electronics firm Apple.

 

But did that investment turn out to be a success – or was it a mistake they came to regret?

 

Incredible as it might seem now, but Berkshire’s initial purchase of Apple in 2016 only came to $6.75 billion, totaling a 1.1 percent stake in the company. Berkshire continued to buy Apple stock over the next two years, eventually acquiring 255 million shares – and a 5.4 percent stake – for a cost of just $36.0 billion. At that point in 2018, the investment was up slightly overall, with at a market value of $40.2 billion.

 

That stake remained relatively stable over the intervening years, with Buffett trimming his position slightly in 2019. Apple then underwent a 4-for-1 stock split in 2020, leaving Berkshire Hathaway with 908 million shares at the end of 2021. And it was thanks to Apple’s policy of buying back its own shares that Buffett’s stake in the firm actually rose, from 5.4 percent in 2018 to 5.6% for the last reporting period.

 

However, the real story here was the massive profits that Buffett’s Apple bet delivered over the last few years. In fact, when Apple hit a $3 trillion market capitalization at the beginning of 2022, Berkshire’s investment shot up to more than $161 billion, netting the conglomerate a cool $100 billion by March of this year.

 

But it doesn’t stop there: Berkshire Hathaway also reported that the firm took home $785 million of Apple dividends in 2021. That’s not a bad annual remuneration considering Buffett only had to spend a total of $31.1 billion on purchasing Apple since 2016.

 

Given Buffett’s original hesitancy about investing in the tech sector, it might come as a surprise that Apple is now Berkshire Hathaway’s largest holding.

 

Indeed, when Buffett first started buying Apple shares, he said that he had misjudged the company and had been too dismissive of its potential. However, he now refers to Apple in his annual shareholder as one of “our four giants,” an accolade if ever there was one.

 

So what does Warren Buffett see in Apple that he doesn’t see in other companies – and why would he risk so much of Berkshire Hathaway’s portfolio on it?

 

Firstly, Apple is a company that can generate incredible amounts of cash, and it consistently produces the kind of free cash flows that could rival almost any other company in the world.

 

Furthermore, Apple has a powerful brand and customer loyalty. People have an emotional attachment to their iPhones and iPads and are highly unlikely to switch to another brand. This gives Apple a huge competitive advantage that is nearly impossible to replicate.

 

On top of that, Apple is extremely innovative, consistently coming up with new products that consumers crave. The iPhone was a game-changer when it was first released, and the iPad changed the tablet market completely.

 

Finally, Apple has one of the best management teams in corporate America. Indeed, Buffett hailed Tim Cook as “Apple’s brilliant CEO” in his last shareholder letter, and he has surrounded himself with top-notch executives too. For all these reasons, Buffett sees Apple as a unique company that’s poised for continued success in the years ahead, and he’s confident enough in his investment thesis to risk billions of dollars in the process.

 

It’s clear that Buffett has had a change of heart when it comes to investing in tech companies, with businesses such as Amazon and Google featuring among Berkshire Hathaway’s top holdings. And given the massive success of Apple over the past few years, it’s hard to argue with this new investment style.

 

In fact, after Berkshire Hathaway’s insurance and railroad plays, Warren Buffett now describes Apple as “the best business I know.” Furthermore, his longtime sidekick, Charlie Munger, also regrets not being more aggressive when buying Apple stock in 2018, given the massive returns it has generated.

 

However, industry insiders believe they have their investing partners Ted Weschler and Todd Combs to thank for the decision to go big on Apple. Indeed, at the time that Berkshire initially bought Apple, Weschler explained that it was the firm’s sticky ecosystem and subscription model that made it so attractive as an investment choice.

 

As mentioned, Apple isn’t the only tech company that Berkshire’s now invested in. In fact, tech firms play a major role in Buffett’s diversification strategy. And if he thinks other tech bets will be just as lucrative in the future, expect more of the same for a very long time to come.