Warren Buffett is considered one of the greatest investors of all time. If you invested $10,000 in the A shares of Buffett's Berkshire Hathaway 30 years ago, you'd have nearly $330,000 today. That's an incredible return, and it makes many investors curious about how Buffett and his team generated those results.
While Berkshire Hathaway owns companies -- or parts of companies -- that investors can't purchase shares in because they are not publicly traded, it also has a large investment portfolio many turn to for ideas. Apple (AAPL -0.35%) is the largest holding in its portfolio, accounting for an incredible 46%. Should investors follow the Oracle of Omaha's example.
Apple has been a star performer in Berkshire Hathaway's portfolio
When Berkshire Hathaway first purchased Apple stock in the first quarter of 2016, I don't think anyone knew of the upside it contained. From the start of 2016 to now, Apple's stock has a total return of over 600%, easily outperforming the market. This performance also helped supercharged Berkshire Hathaway's returns, as the stock has risen 176% compared to the S&P 500's 141% rise.
But does that warrant extreme portfolio concentration? Buffett has been vocal in explaining to investors that portfolio concentration isn't a big deal if you know what you're doing. Furthermore, he believes investors only have a few great investments over their careers, and being concentrated helps those investments shine.
While this may play out well for some investing rock stars, it may not be a wise path for an individual investor who occasionally glances at their portfolio. As a result, 46% concentration in one stock probably isn't wise for many investors. Additionally, Buffett didn't just go out and buy a 46% stake. He started in smaller pieces and added to the stock as he became more and more confident in it.
If you see a stock in your portfolio outperform without a massive thesis change, it may be a smart stock to add to.
But is Apple that way for Buffett?
The stock isn't nearly as cheap as it once was
Berkshire Hathaway's most recently reported purchase of Apple was in Q1 2023, when it purchased 20 million shares. Clearly, Buffett still believes in Apple as an investment. Is he right?
Apple is no longer the screaming deal it was seven years ago, as its valuation has nearly tripled.
AAPL P/E Ratio data by YCharts.
With Apple trading at around 29 times earnings, it is far from a cheap stock. Throw in Apple's declining revenue, and it looks like a stock that may have reached its peak.
The cause of declining revenue? Declining iPhone sales. Berkshire Hathaway's original purchase coincided with the rise of the iPhone, and for many years, consumers rushed out to purchase the latest phone generation.
However, the sales cycle has become elongated as consumers aren't upgrading their devices as frequently.
Still, Apple has a massive global market opportunity to capture -- there are a lot of people who don't own an iPhone -- so the upside remains, although not at nearly the levels presented in 2016.
I think investors should avoid Apple stock. With the stock trading at an expensive level plus experiencing sales growth, there are much better places for investors to park their money than in Apple.
