Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett is an anomaly as an investor -- but in a good way. Since becoming CEO in 1965, he's vastly outpaced the benchmark S&P 500. On an annualized return basis, including dividends, Berkshire Hathaway's Class A shares (BRK.A) have doubled up the S&P 500 (19.8% vs. 9.9%) during Buffett's tenure.
While there's no shortage of money managers who can string together a couple of years of phenomenal returns, the Oracle of Omaha has been doing it for nearly six decades. It's why more than 30,000 people flock to Omaha, Nebraska each year to hear him and his right-hand man Charlie Munger speak at Berkshire's annual shareholder meeting. It's also why so many new and tenured investors mirror the buying and selling activity of Buffett.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
One thing Berkshire Hathaway's $354 billion investment portfolio makes very clear is that Warren Buffett loves to concentrate his company's invested capital in a small number of top ideas. While it would appear that no company is garnering more attention from Buffett and his investing team at the moment than Apple (AAPL -0.35%), looks can be deceiving.
Apple is "a better business than any we own"
As of the closing bell on June 16, 2023, the 915,560,382 shares of Apple stock held by Berkshire Hathaway equates to a market value of $169.3 billion. This works out to 47.8% of the invested assets of Berkshire's investment portfolio and is nearly 40 percentage points higher than the second-largest holding by portfolio weighting, Bank of America (8.5%).
The Oracle of Omaha and his team are up big on their Apple stake. Based on estimates from Form 13F aggregator WhaleWisdom.com, the more than 915 million Apple shares owned by Berkshire Hathaway have a cost basis of $39.62. In other words, Buffett and his investing lieutenants (Ted Weschler and Todd Combs) have turned an approximate $36.3 billion investment into $169.3 billion, not including dividends paid, over seven years. Not too shabby!
Buffett hasn't been shy about his feelings for Apple. During Berkshire's annual meeting, he referred to the tech giant as "a better business than any we own." That's a powerful statement considering Berkshire holds stakes in around four dozen securities and has acquired roughly five dozen companies over the years.
There look to be four factors that have endeared Buffett to Apple. The first is its customer base and brand. It's pretty consistently viewed as the world's most valuable brand in surveys, and its customers are exceptionally loyal.
This second point, which builds on the first, is that Apple has a rock-solid management team led by CEO Tim Cook. Under Cook's leadership, Apple has maintained its dominance in U.S. smartphone market share and continues to evolve into a services provider. Buffett rarely, if ever, invests in businesses with questionable management teams.
Innovation is the third factor likely driving Buffett's interest in Apple. While the Oracle of Omaha probably couldn't tell you how an iPhone works, he can see via Apple's earnings reports how its evolution into services can lift its operating margin long term and lessen the revenue volatility that occasionally accompanies iPhone replacement cycles.
Lastly, Apple has one of the best capital-return programs. While its yield of 0.5% is nothing to write home about, its nominal-dollar payout of better than $15 billion annually is one of the largest on the planet. Furthermore, the company has repurchased $586 billion worth of its common stock over the past 10 years. Warren Buffett absolutely loves when Berkshire's stake in a company grows via share buybacks without having to lift a finger.
Image source: Getty Images.
The Oracle of Omaha has spent over $70 billion buying another stock
While it's plainly evident that Warren Buffett and his investing crew made a prescient decision putting Berkshire's money to work in Apple, you might be surprised to learn that the estimated $36.3 billion invested in Apple doesn't even come close to matching the amount of money Buffett and Co. put to work in another highly loved stock.
Some of you might be scratching your head and wondering how such huge purchases could slip through the proverbial cracks given that Berkshire Hathaway is required to disclose what it buys, sells, and holds via a quarterly 13F filing. The answer can be found by taking a closer look at Berkshire Hathaway's quarterly operating results and its ongoing share-repurchase program.
While all of Berkshire Hathaway's stock purchases are being shown in the company's 13Fs, share buybacks of Berkshire Hathaway stock won't show up in 13Fs. Instead, they're listed toward the end of the company's quarterly filings.
Since July 17, 2018 -- i.e., the date Berkshire's board altered the criteria governing buybacks to allow Buffett and Executive Vice Chairman Charlie Munger more liberty to repurchase Berkshire stock -- Buffett and Munger have OK'd the repurchase of more than $70 billion in Berkshire Hathaway shares. That's nearly double the amount spent in less than five years on buybacks than was put to work buying shares of Apple over a seven-year span.
Buying back such an exorbitant amount of Berkshire Hathaway stock holds three purposes. First, it's continually increasing the stakes of existing shareholders. Much in the same way that Berkshire's stake in Apple keeps growing with the company, reducing its outstanding share count, Berkshire's buybacks are making its long-term shareholders successively bigger owners of the company.
Second, share buybacks have a way of increasing earnings per share (EPS) for businesses with steady or growing net income. Putting aside the potentially wild swings tied to Berkshire Hathaway's unrealized gains and losses on its investments, the company's core operating segments have steadily grown their operating profits over time. In other words, this $70 billion-plus in buybacks is helping to lift Berkshire's EPS and is making it even more attractive to fundamentally focused investors.
And third, this veritable mountain of buybacks may signal Warren Buffett's unwavering optimism in his company and the long-term vision he, Charlie Munger, and his investing lieutenants have built. Most of the companies Buffett and his team have acquired or invested in are cyclical, and will therefore ebb and flow with the U.S. economy. Since periods of expansion last considerably longer than economic downturns, patience should allow Berkshire's owned and invested assets to handily outperform over long periods.
