At Berkshire Hathaway's (BRK.A -0.30%) (BRK.B -0.26%) recent annual meeting, CEO and billionaire investor Warren Buffett answered a question from a shareholder who was concerned with how big the company's Apple (AAPL 0.52%) investment had become. And it's not hard to see why the question was asked. With a market value of nearly $158 billion as of this writing, the Apple stock makes up roughly 47% of Berkshire's stock portfolio and is equal to 22% of the conglomerate's entire market cap.

Specifically, the shareholder was quoting another famous investor, Aswath Damodaran, who has said that he isn't comfortable with positions reaching 25%-35% of his portfolio.

Buffett pushed back a bit, defending Berkshire's high exposure to Apple stock. In fact, he went so far to say that Apple is the best business Berkshire owns.

Buffett has high praise for Apple

Of course, Berkshire doesn't own 100% of Apple like it owns 100% of GEICO or any of its other 60+ subsidiaries. Its stake amounts to about 5.8% of Apple. So, Berkshire evaluated Apple somewhat differently than its wholly owned businesses, simply because its ownership could be adjusted up and down.

"Our criteria for Apple was different than the other businesses we own. It just happens to be a better business than any we own," Buffett told investors. He even went so far as to call it a better business than BNSF Railroad, one of Berkshire's key subsidiaries. Buffett said "Apple is a better business. Our railroad is a very good business. It was not remotely as good as Apple's business."

Why does Buffett like Apple so much?

Buffett will be the first to admit that he isn't a tech-savvy investor. In fact, he only got his first smartphone (an iPhone) in 2020. But he still thinks Apple is a fantastic business. As Buffett puts it, "I don't understand the phone at all, but I do understand consumer behavior."

Buffett has spoken many times about the stickiness of Apple's customer base and how the company's phones and other products are considered essentials for its users. At this year's meeting, Buffett said how people would rather give up their second car than their iPhone, which he calls extraordinary. He said that in Berkshire's portfolio of businesses, "we probably don't have anything like that, that we own 100% of."

Apple's aggressive buybacks also have a lot to do with it

Earlier I mentioned that Buffett had different criteria for Apple because Berkshire's ownership stake can change over time. Apple has a notoriously large buyback program, having repurchased a staggering $572 billion of its own stock since 2012, more than three times any other company. Because of this, Berkshire's stake can increase with Berkshire doing nothing at all.

Buffett loves that when Apple buys back its shares, other investors have to sell, such as the index funds that own Apple. "They use their earnings to buy out our partners, which we're glad to see them sell out, too. The index funds have to sell. They bring the number of shares down."

Berkshire's stake in Apple might be relatively small right now. But as the company buys back stock, Berkshire's ownership percentage increases. For example, if Apple were to buy back about 3% of its outstanding shares this year (which isn't a big stretch), Berkshire's stake would increase from 5.8% of the tech giant to 6%, without investing any more money.

Berkshire's Apple stake is larger than any other component of its business, so even though the conglomerate owns a single-digit percentage in its stock portfolio, it makes sense to think of it as a business all by itself.

Finally, Buffett wrote in another recent annual letter that one of Berkshire's main competitive advantages over other conglomerates is its willingness to not own 100% of its businesses. With a profit so far of well over $100 billion on Apple, it's hard to argue against Buffett's logic.