Few investors on Wall Street command attention quite like Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%) CEO Warren Buffett because the Oracle of Omaha has put on a clinic for nearly six decades. Since taking the reins at Berkshire, he's led his company's Class A shares (BRK.A) to an aggregate return of 3,787,464%. This is 153 times greater than the total return, with dividends included, of the S&P 500 over the same time frame.
While few money managers can hold a candle to Buffett over long stretches, surpassing the Oracle of Omaha's returns on an annual basis is possible. That's exactly what happened in 2022.
Image source: Getty Images.
Despite all three major U.S. stock indexes falling into a bear market last year, Berkshire Hathaway's Class A shares delivered an impressive 4% return. However, billionaire investor Ken Griffin, who oversees hedge fund Citadel Advisors, did a wee-bit better. When the curtain closed on 2022, Citadel generated a 38% full-year return, to go along with a record-breaking $16 billion profit.
It pays to know what the world's top money managers are buying, selling, and holding in their funds' portfolios. What follows are Ken Griffin's three top stock holdings, excluding the numerous options positions that Citadel Advisors uses to hedge its common stock holdings.
Meta Platforms
Based on the most recent Form 13F filing from Citadel Advisors, social media stock Meta Platforms (META -10.56%) was the hedge fund's largest holding. The more than 8 million shares held equated to a market value of $967 million, as of Dec. 31, 2022. If Griffin's fund held the same number of shares today, they'd be worth about $1.73 billion.
The likeliest reason Citadel piled into shares of Meta is the expectation that its two core headwinds would be short-lived. These headwinds are a slowdown in ad spending, precipitated by the growing likelihood of a U.S. recession, along with swelling losses from Reality Labs, the company's metaverse and augmented-reality segment.
The great thing about the ad industry is that it's cyclical. While ad spending will almost certainly decline during periods of economic contraction, it's important to recognize that all recessions after World War II have lasted just two to 18 months. Betting on the ad industry to rebound and take advantage of economic expansions that are typically measured in years is a smart move.
To build on the above, Meta owns four of the most popular social media platforms in the world: Facebook, WhatsApp, Instagram, and Facebook Messenger. During the fourth quarter, 3.74 billion unique people visited at least one Meta-owned app each month. During bull markets, this should help Meta achieve significant ad-pricing power.
With regard to widening losses at Reality Labs, Meta CEO Mark Zuckerberg and the company's board have responded by approving a $40 billion share buyback, as well as reducing the company's full-year expenditures for 2023 by $5 billion (at the midpoint) from previous guidance. Thankfully, Meta remains very profitable and has the balance-sheet flexibility to spend aggressively on projects that may not move the needle for a couple of years.
Tesla
The second-largest stock holding in billionaire Ken Griffin's portfolio is electric-vehicle (EV) manufacturer Tesla (TSLA 4.96%). Citadel Advisors closed out 2022 with nearly 7.52 million shares of North America's leading EV producer in its portfolio.
Tesla has been profitable for three consecutive years and is no longer reliant on selling renewable energy credits (RECs) to other automakers to remain profitable. By comparison, most new and legacy automakers are losing money on their respective EV divisions.
Rapidly rising production is another reason Griffin and his team were likely intrigued by Tesla. After producing 1.37 million EVs in 2022, the company is angling for around 1.8 million EVs produced this year. This increase is primarily expected to come from the company's gigafactories in Texas and Germany ramping up activity.
It's also worth mentioning that Tesla's long-awaited Cybertruck is expected to begin commercial production this summer, albeit high-volume output isn't expected until 2024. Keeping in mind that Cybertruck reservations were only $100 and fully refundable, Tesla counted 1.5 million pre-orders in November.
But betting on CEO Elon Musk can be incredibly risky. Musk has offered a mountain of promises but failed to deliver on numerous innovations. With production delays for new models becoming common, we're beginning to see evidence that Tesla's EV market share is slipping.
What's more, Tesla has cut prices in the U.S. five times since 2023 began. Although one hypothesis states that these price cuts are the result of production becoming more efficient, rapidly rising inventory levels suggest otherwise.
Given the penchant for portfolio turnover often exhibited by Ken Griffin and his investment team, it wouldn't be shocking if Citadel substantially reduced its stake in Tesla following its first-quarter run-up. We'll know for sure when Citadel files its Form 13F for the first quarter next month.
Image source: Apple.
Apple
Despite running absolute circles around Warren Buffett in 2022, Ken Griffin and the Oracle of Omaha share one thing in common: a love for tech-stock Apple (AAPL 0.52%). The company that comprises a whopping 44% of Berkshire Hathaway's investment portfolio is Citadel Advisors' third-largest holding by market cap.
If I had to venture a guess as to why Griffin's hedge fund holds nearly 6.16 million shares of Apple, the answer would be some combination of branding, innovation, and cash-flow consistency.
Regardless of what company is conducting the study, Apple tends to finish at the top of many brand-value surveys. It has a globally recognized brand and a veritable army of consumers who wait in line to buy new products.
With regard to innovation, Apple has fired on all cylinders more often than not for the past 15 years. Since introducing a 5G capable iPhone during the fourth quarter of 2020, the company has controlled around half of all U.S. smartphone market share. It's also seen its share of U.S. personal computer shipments (Mac) climb to a decade high.
But the innovation that's probably intriguing Ken Griffin and his investment team at Citadel is what Apple is doing on the subscription services front. Apple isn't turning its back on the physical products that attach consumers to its brand. Rather, it's evolving into a platforms company that uses subscription services to boost brand loyalty and increase its operating margin over time. At some point in the future, it wouldn't be a surprise to see subscription services become Apple's leading cash-flow driver.
Lastly, Apple generates a lot of cash -- over $109 billion in operating cash flow over the trailing-12-month period, to be precise. This cash allows Apple to reinvest in its business, make acquisitions, as well as reward its shareholders. It's doling out $14.55 billion in annual dividends to shareholders and has overseen more than $550 billion worth of share buybacks in 10 years.
