Why Is 50% Of Buffett’s Portfolio In Apple?

What is Warren Buffett’s Apple shares percentage? Warren Buffett invested 50% of Berkshire Hathaway’s equity portfolio in Apple stock.

It should come as a huge surprise to most avid Buffett followers that he would bet so heavily on a single stock, so what exactly does he see in Apple (NASDAQ:AAPL) that makes it an even better investment opportunity than his beloved Coca Cola (NYSE:KO) or American Express (NYSE:AXP) holdings, both of which he has held for decades?

How Much Apple Stock Does Buffett Own?

Warren Buffett holds 915 million shares of Apple in Berkshire Hathaway’s equity portfolio, representing 50.04% of its equity portfolio.

Some people confuse that to mean that half of Berkshire Hathaway’s investments are in Apple stock. But that’s not the case in fact. While half of his equity portfolio is comprised of Apple shares, Buffett also has investments in insurance and railways, as well as Geico, Duracell, Dairy Queen and other wholly owned companies that don’t fall within his equity portfolio.

An obvious question that does arise is, within Berkshire’s stock portfolio, why was Buffett willing to bet five times more on Apple than the next largest holding?

If you take a look at Berkshire’s top five holdings, they are Apple, Bank of America, American Express, Coca Cola and Chevron.

Bank of America constitutes 9% of his portfolio while American Express and Coca Cola both represent closer to 7% and Chevron rounds out the top five positions with a near 6% share of the pie.

If Buffett got his Apple bet wrong, he risked virtually sinking the entire Berkshire stock portfolio. For example, if his Apple shareholding fell by 50%, his overall portfolio would have lost 25%. In order to make up the difference, all his other positions combined would have had to rise by 50% to get back to breakeven.

That’s asking a lot of all his other holdings, and so it suggests Buffett had enormous conviction in his Apple purchase. So much so in fact that he must have been virtually certain that it would rise over time, but why?

What gave Buffett that level of certainty that he would make money buying Apple? And particularly given that his prior foray into buying technology stocks, which came in the form of buying IBM stock, ended up as a dud.

What Makes Apple’s Business Model So Special?

Buffett identified a key characteristic in Apple’s business model that few companies possess, pricing power. 

He explained in a simple thought experiment how attached Apple’s customers are to its product as follows. Imagine a customer was offered $5,000 to give up your iPhone, would they do it? Buffett’s contention was that they would keep their phone instead of taking the $5,000 and so it indicated that Apple could likely raise prices further without hurting demand. If it did so, Apple could boost its margins, profitability and net worth.

Another thought experiment he ran was whether an iPhone user would prefer to give up a second-hand car or give up an iPhone.

Rationally, someone should give up their phone first because it’s worth so much less than the car. But his belief is that a poll of consumers would reveal their preference for giving up the car before the phone. Again it highlighted that while the phone is priced less, it’s worth more and that means Tim Cook and his team have flexibility to further hike prices without losing customers.

Beyond the pricing power argument, Buffett sees Apple enjoying an enduring competitive advantage that makes it virtually impossible to disrupt. Elon Musk seemed to agree when he commented recently in an interview that he doesn’t see a way to improve phones as handheld devices. His only way to augment the digital experience a phone provides is via a chip implant in the brain, an initiative that may one day come to realization through his Neuralink venture.

For now, though, it seems nothing can dislodge Apple from its perch and a primary reason for that is its app ecosystem. Underpinning the success of the iPhone is that other businesses are built on top of the phone. For example, Facebook, Whatsapp, Uber and so on are all heavily dependent on Apple’s phone to drive their own successes. 

As the ecosystem of apps grows, consumers become ever more dependent on the phone because giving it up means parting ways with all the apps on the phone too. Whether you spend your time on your phone playing video games, on budgeting apps, calling for meal delivery services, or any one of thousands of other services, the odds are low any user is willing to forego them all.

With all that said, will Buffett ever sell Apple shares in Berkshire Hathaway’s stock portfolio?

Will Buffett Sell Apple?

From 2016 through 2018, Buffett accumulated the bulk of his Apple shares but he did make a few sales towards the end of 2018 and into 2020.

At the end of 2018, he sold 11.6 million shares and followed that up by selling 17.7 million shares in 2019 and almost 100 million in 2020.

Since then, Buffett has commented that those sales were likely a mistake and, having seen Apple share price by almost 2x since then, it’s clear why the Oracle of Omaha has taken that view.

His comment is also insightful because it suggests that not only does he regret selling the shares he did but he is also unlikely to sell any others at anytime in the foreseeable future. That is a further vote of confidence in Apple so should you follow in Buffett’s footsteps?

Is Apple Stock a Good Investment?

To gauge whether Apple is a good investment, we can look to the most important checklist item Buffett is widely believed to use when evaluating the merits of a stock purchase.

Does Apple have a wide moat that creates a sustainable competitive advantage? Absolutely in the form of its technology advantage and app ecosystem, let alone the stable demand for its devices among academic institutions and corporate businesses. Consider for example the hundreds of thousands of devices, whether iPads or Macs, purchased by schools across the nation and the world at large, as well as the increasing market share of Macs over the past decade.

Beyond that, Apple has a pricing power advantage and modest dividend to entice even the most conservative investors. Still, it’s worth keeping in mind that Buffett made his first purchase of Apple back in Q1 2016 at an estimated share price of $24.91, so his margin of safety is enormous now, meaning Apple could fall a lot and his holding would still be above water.

That cushion room isn’t so attractive now with 44 analysts pegging fair value at $198 per share. Nonetheless, on a dip, expect Apple to find buyers as it has consistently in recent years.

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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.