Warren Buffett doesn’t seem like much of the gambling type. The 91-year-old has become famous for his winning ways in finance, but you would never expect to see the man in a casino. Yet it’s difficult to speak about his successes without invoking words like “jackpot.”
Other words are difficult to avoid when talking about Buffett. Words like “prescient” and “oracle.” Buffett started buying Coca Cola as far back as 1988, making it his oldest—and longest—position. It’s the fourth-largest equity position of Berkshire Hathaway, the $600 billion market cap holding company Buffett helms.
It’s worthy of note that since his first acquisition of Coca-Cola stock in 1988, the stock value has snowballed over 2,000%.
How Long Does Buffett Hold Stocks?
Buffett is known for his buy-and-hold strategies. In the annual letter Buffett wrote in 1988, he said in part, “when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
The two “major purchases” Buffett mentioned in that letter—Coca-Cola and Federal Home Loan Mortgage—have performed exceptionally well and were acquired at a fraction of their current market value. Even today, the 400 million shares of Coca Cola Berkshire owns make it their fourth-largest position.
Buffett is known for this reserved, patient approach to trading, which made his investment in Apple seem like an unusual move for him and arguably contradicted his own value investing principles.
The bet paid off. AAPL was the best investment Buffett has made in the past ten years, and he has called Apple one of the “four giants” in Berkshire’s portfolio. Again, the word prescient seems appropriate, as Buffett acquired those stocks at a quarter of their present-day trading price.
Berkshire Operating Earnings Up 45%
Under Buffett’s steady hand, Berkshire Hathaway began buying Apple stock in 2016. Within two years, it had so many shares that Berkshire was a 5% owner of the tech titan. Though this maneuver cost $36 billion, it returned over $100 billion in just six years.
It stood firm against the onslaught of the health crisis in recent year even as the other three giants in Berkshire’s holdings— utilities, energy, and railroad sectors—took a few hits. Despite those hits, Berkshire’s operating earnings grew by over 45% in its fourth-quarter when the other three giants began to rebound.
Apple was an essential asset for Berkshire during the worst of the pandemic. With massive numbers of people locked down, quarantined, or working remotely, demand for the company’s product soared. Apple reported record profits, one of the few companies to do so.
The slight slump Apple’s stock value is currently experiencing is, in fact, partly caused by slowed demand as workforces are returning to on-site work, and distance learning is now the exception to the norm. But the stock is still rated a buy by most analysts, who expect continued profits (albeit not at its current rate of climb).
Foxconn Shutdown: A Bump In The Road?
The ever-so-slight correction down to the $160 range from a previous high of around $180 is also due to ongoing supply chain concerns. Partly alleviating those concerns are the factors of Apple’s massive size. The company can place demands or make deals with its suppliers that smaller companies can’t pull off.
Still, Apple’s chief supplier is currently struggling with the effect of a lockdown in Shenzen due to rapid growth in the numbers of new infectious cases from the virus. The government imposed work stoppage kinks the hose for Foxconn, but perhaps not by much.
The Chinese company, now used to working in pandemic conditions, has diversified its operations to respond to regional quarantines. Analysts think that Foxconn is better able to deal with the current situation in Shenzen because of these measures, but time will tell.
Last but not least, the ongoing war in Ukraine continues to cause chaos on world markets, and amidst this uncertainty, even giants stumble.
Low Price Spikes Demand
But Apple is still a solid investment—it wouldn’t be the largest in the Berkshire portfolio if it weren’t. It’s an iconic brand with consistently high profit margins.
It has seen record profits recently, due in no small part to the launch of the comparatively low price iPhone SE (priced at $429, a departure from Apple’s usual high-ticket new model prices).
It’s quite possible that savvy investors are choosing this moment to increase their AAPL ownership, though Buffett will almost certainly keep his stake under 10% to avoid reporting restrictions. There hasn’t been a dip like this on Apple stock in the last few years, and its $2.6 trillion market cap makes it a relatively safe bet any day of the week.
Share Buybacks Spark Valuation Increases
Buffett bought back Berkshire shares in 2021 to the tune of $27 billion—a record. The Oracle of Omaha has proven that his preferred manner of dealing with a continually and increasingly expensive market was “internal opportunities.”
Strategies like this earned Buffett his reputation—and Berkshire Hathaway its record $146.7 billion assets as of the end of last year.
Apple’s CEO, Tim Cook, would agree with Buffett’s philosophy. Apple regularly repurchases its stock. Buffett called Cook “Apple’s brilliant CEO” in his most recent annual letter, and it’s no mystery why there’s a certain fondness there. Cook’s buyback policies increase the value of Berkshire’s holdings with no effort or oversight required.
Record Breaking Profits Vs Share Price Dip
Buffett—and Berkshire Hathaway—are undoubtedly into Apple for the long haul. The man practically defined the term. The company posted record-breaking profits in its most recent holiday quarter, thanks mainly to billions in economy-priced iPhone SE sales.
In the past decade, Apple’s revenue has grown by a stunning $200 billion. Even more incredible, its operating income has swelled from its 2012 level of $55 billion to over $109 billion in 2021. Buffett probably considers AAPL’s current dip to be the bargain of the year, as it gives wise investors the rare opportunity to buy Apple stock at 12% below its high.
Berkshire has periodically lightened up on its equity holdings in Apple, usually at advantageous moments. Even still, its ownership of Apple continues to increase, from 5.27% at the close of 2020 to an ever-so-slight bump of 5.43% at the end of 2021.
It’s important to note that the “ever-so-slight bump” is meant ironically, as each 0.1% of that increase represents a cool $100 million in Apple’s 2021 earnings. It’s no wonder Berkshire continues to buy Apple stock—Apple’s regular dividends have, over the years, averaged an annual $775 million.
It’s no wonder Buffett’s “bet” on AAPL paid off. There’s that word “oracle” again, and it’s not for no reason. Though his initial foray into Apple ownership had more than a few scratching their heads, it just goes to show how masterful the man’s tactics are.
Berkshire, Apple’s biggest single owner, owes its record valuation in large part to the 40% of their equity portfolio that Apple represents. That’s a value of over $160 billion. Will Buffett continue to buy—and hold—AAPL?
It’s a safe bet.
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.