Berkshire's Apple Investment Is Down $21.6 Billion -- Here's Why Warren Buffett Probably Isn't Worried

Each of Berkshire's 252.5 million shares is down more than $85 from Apple's peak.

Matthew Frankel, CFP
Matthew Frankel, CFP
Jan 8, 2019 at 7:27AM
Financials

Since peaking at more than $233 in mid-2018, Apple (NASDAQ:AAPL) has lost about 37% of its value, plunging deep into bear market territory. With 252.5 million shares in its closely followed stock portfolio, this means Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) investment has lost $21.6 billion -- at least on paper.

That's a large amount of money, even in the context of Berkshire. However, if you think Warren Buffett is worried about his investment, think again. In fact, the exact opposite is probably true.

Warren Buffett smiling.

Image source: The Motley Fool.

Berkshire's Apple investment: The timeline

Apple first appeared in Berkshire Hathaway's stock portfolio in early 2016. The original purchase was for about 9.8 million shares and was worth about $1 billion at the time -- relatively small for a Berkshire investment. What's more, the original purchase didn't come from Buffett at all. One of his stock pickers, Ted Weschler or Todd Combs, was initially responsible for the addition. The very next quarter, Berkshire added another 5.42 million shares.

Since then, Berkshire's stake has been increased in nearly every quarter -- including the last eight in a row -- and even after the recent decline, is the largest stock position in the company's portfolio by a big margin.

Quarter

AAPL Shares Added

Total Shares Owned

4Q 2016

42,131,950

57,359,652

1Q 2017

71,997,454

129,357,106

2Q 2017

834,854

130,191,960

3Q 2017

3,900,822

134,092,782

4Q 2017

31,241,180

165,333,962

1Q 2018

74,233,671

239,567,633

2Q 2018

12,388,244

251,955,877

3Q 2018

522,902

252,478,779

Data source: Berkshire Hathaway 13-F filings.

Why Buffett invested so much money in Apple

Apple has a few qualities Buffett loves. He has tremendous respect for CEO Tim Cook, the company has tons of cash, and it continues to generate boatloads of free cash flow, to name a few. Plus, Apple is buying back stock hand over fist, a move Buffett loves when he feels that a company is trading for less than its intrinsic value.

And, Buffett loves Apple's "sticky" business. The company has a remarkably loyal customer base, and it's proven extremely difficult, if not next to impossible, for competitors to steal market share. As Apple's service businesses (Apple Music, etc.) continue to grow, this moat should get even wider.

Of equal importance, Buffett did not invest in Apple because of how well he thought the iPhone XS would sell, or how well the company's holiday sales would come up, or how well Apple's products would sell in China while a trade war was going on.

"Nobody buys a farm based on whether they think it's going to rain next year," Buffett told CNBC last year. "They buy it because they think it's a good investment over 10 or 20 years."

In other words, Buffett really doesn't care what Apple's sales figures are for any particular quarter (or year, for that matter). As long as the company continues to maintain its market share and competitive advantages, the long-term investment case for the stock is intact.


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Buffett loves situations like this

Obviously, nobody enjoys watching the value of their investments go down. That being said, Warren Buffett historically loves when a combination of two specific things happens: a stock he loves is trading for fire-sale prices, and Berkshire has tons of cash available to use. And both are certainly true now. In fact, Berkshire had more than $100 billion in cash at the end of the third quarter, which is about $80 billion more than Buffett insists on maintaining.

Now, we won't know what moves Buffett and his team made during the volatile fourth quarter, but I'd be extremely surprised if it wasn't the most active quarter of 2018 in terms of stock purchases. And I'd also be surprised if Buffett didn't add to the Apple stake at these depressed prices.

Check out the latest Apple earnings call transcript.