Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett is fairly regarded as the greatest investor of all time. He's built his Berkshire Hathaway conglomerate into one of the most valuable companies in the world, worth nearly $1 trillion, and he's done that almost entirely through his investing acumen, buying companies with sustainable competitive advantages and investing in stocks that have outperformed over the long term. In other words, Berkshire's path to success has been different from most companies that make their own products or peddle their own services.
Naturally, investors follow his moves closely, and it's easy to track Berkshire's stock purchases and sales holdings through SEC filings. When those disclosures reveal that Buffett has recently bought a stock, shares often go up as investors follow his lead, and they often interpret Berkshire's investment in a company as a stamp of approval from Buffett himself.
Despite that track record, you might be surprised to learn that Buffett's top 10 holdings actually underperformed the market on average last year, and four of them lost value even in a year when the S&P 500 gained 24%.
Data by YCharts.
You'll notice from the chart that six of Berkshire's top 10 stocks underperformed the S&P 500 by a wide margin as Bank of America and VeriSign just squeaked into positive territory. But the chart offers a number of other insights as well.
For example, that group of 10 stocks represents significant diversification. They include three financial stocks, Bank of America, American Express, and Moody's; two oil stocks, Chevron and Occidental Petroleum; two consumer staples stocks, Coca-Cola and Kraft Heinz; one healthcare stock, DaVita; and two tech stocks, Apple (AAPL -0.35%) and VeriSign.
Image source: The Motley Fool.
Why Buffett is still beating the market this year
Though it might surprise you based on the chart, Buffett's portfolio actually beat the market in 2023. While the top 10 stocks returned an average of about 12%, or half of what the S&P 500 returned, Berkshire doesn't hold these stocks in equal portions. Apple makes up about half of Berkshire's entire stock portfolio and more than half of the holdings from its top 10 stocks.
That stake fueled Berkshire's return last year as Apple jumped nearly 50% while riding the broader boom in the tech sector over enthusiasm for new artificial intelligence (AI) technologies. Apple's margins also continue to expand thanks to the growth of its services business, which delivers strong profits by capitalizing on Apple's installed base with offerings like the App Store, Apple Pay, and Apple Music. Investors also seem excited about the launch of the new Vision Pro spatial computing headset, due out in early 2024.
What it means for investors
There are two important lessons for investors here.
First, position sizing matters. It's no accident that Berkshire Hathaway has half of its investments in Apple. The iPhone maker has done incredibly well for Berkshire, and Buffett has sung its praises time and again, saying it's "probably the best business I know in the world." Apple is also big enough that Berkshire can own a $157 billion stake without being subject to special disclosure rules, which it generally prefers to avoid.
Second, Apple is such a large part of Berkshire's portfolio because it's grown its way there. Though Berkshire has acquired more shares of Apple since it first bought the stock in 2016, most of its value has come from price appreciation. The chart shows how Apple has trounced the S&P 500 since early 2016 when Buffett first began buying the stock.
Data by YCharts.
That's evidence for why you should let your winners run, a rule that Buffett himself endorses, as he's said that under the right conditions, "Our ideal holding period is forever."
Given Apple's competitive strength and its impressive track record, expect the tech giant's stock to remain a core part of Buffett's portfolio for a long time.
