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Originally Posted On: https://summamoney.com/investing/the-spotlight/why-buffett-put-so-many-eggs-in-1-basket/

In the investment world, Warren Buffett is king. He’s regarded as the most successful investor in history, and Buffett’s company, Berkshire Hathaway, holds an impressive portfolio — especially when it comes to the company’s shareholding in Apple.

Most recently, Berkshire Hathaway’s stake in Apple grew to an astonishing 41% of its equity portfolio, representing nearly a quarter of Berkshire’s market capitalization. The total holding of Apple amounts to a remarkable $150 billion position.

The rules of money management generally recommend diversifying holdings, so does it make sense for Buffett to invest so heavily in Apple?

The History of Buffett and Apple

Berkshire Hathaway first began acquiring Apple stock in 2016, purchasing 9.81 million shares. Prior to this investment, Berkshire Hathaway had invested in only one technology company — IBM, which turned out to be a flop.From 2016 until 2018, Berkshire acquired its 5.4% stake in Apple for just $36 billion. However, in 2020, Berkshire sold a small portion of its position, pocketing $11 billion.The idea behind selling small pieces of its stake in Apple was to free up funds to invest elsewhere, such as Verizon – which was offering a high dividend yield – and Chevron. He would later admit that this was “probably a mistake on his part,” noting that by comparison, Apple is an extraordinary business. Despite being very late to the Apple investment party (after all the iPhone was launched almost a decade before when Buffett first acquired Apple shares), the investment has still worked out extraordinarily well for Buffett.

Buffett’s initial investment in Apple certainly was slightly out of character, as he is best known for steering clear of tech stocks. Although this investment was a surprise to many, Buffett bought into Apple when the iPhone maker was experiencing a slight slump. The company had announced its first quarterly drop in 13 years, yet Buffett was confident Apple would bounce back. And did it ever.

If he hadn’t adjusted his investment strategy, his portfolio would not be performing as well as it is today, especially since his investments in energy and insurance took a hit during the recent pandemic. Today, this “off-brand” move is viewed by many as his greatest trade ever made and the numbers back up the claim.

Thanks to the power of repurchases, Berkshire now owns “a full 10% more of Apple’s assets and future earnings than [they] did in July 2018,” Buffett said. The total gains accrued to Berkshire have amounted to north of $100 billion.

Apple Stock Is an Excellent Investment — Here’s Why

It’s hard to imagine that Apple first sold shares to the public on December 12, 1980 for just $22 per share.

In late 2020, Apple’s shares rose 57%, valuing the company at just under $2 trillion. In early 2021, Apple showcased impressive growth. Based on the company’s fiscal Q1 report, Apple saw double-digit growth in every product category, boasting over 1.65 million active devices. And in 2022, the trend continues in spite of supply chain constraints.

An edge Apple has is its trusted brand. Simply put, consumers trust that Apple will deliver quality software, hardware, and services. Apple has earned strong customer loyalty, which has resulted in pricing power. For example, Apple recently released a pair of headphones marked with a $549 price tag. Demand has exceeded supply.

The Top Merits of Apple, As Seen By Buffett and Other Investors

• Pricing power is something we touched on above, which is something Buffett has been vocal about. Buffett said in 2018 that he loves Apple as an investment because of the power of its ecosystem and brand. He was never interested in short-term financials. His interest in Apple is based on the millions of people who “live their lives” by Apple. He even went so far as to say that the iPhone is “enormously underpriced” — it’s worth more than the $1,000 Apple charges. The claim seems astonishing, a $1,000 phone seems pricey after all. To that argument Buffett counters, would you give up your phone for $1,000? For most, the answer is no, and that proves Buffett’s point, Apple has the power to further increase prices.
• Apple’s stock buyback program acts as a support system for its stock. This program has helped Apple to drive healthy earnings growth. For example, Apple could buy back 3% to 4% of its shares through 2026 without adding any net debt. Buybacks boost earnings per share by reducing outstanding share counts.
• Apple’s dividend satisfies income investors
• Apple controls the screen with its own operating system – just look at how quickly Parler’s valuation collapsed when Apple and Alphabet removed it from their App and Play stores respectively.

What the Future Holds for Apple

Some say that since the passing of Steve Jobs, Apple just isn’t the same innovative company. Yet, it’s been ten years since Tim Cook took over as Apple CEO, someone who Buffett speaks about with the utmost respect. Since Cook became CEO, Apple stock has delivered a nearly 1,200% return.

In 2018, Apple became the first publicly traded American company to reach a $1 trillion market cap, hitting $2 trillion just over two years later, and the company is showing no signs of slowing down. Indeed it recently hit a $3 trillion market capitalization.

The Apple Car is being described as the company’s “next star product” and will likely be marketed as a very high-end model. There has even been talk of Apple’s secret satellite project. These satellites would be dedicated solely to Apple-related data, allowing for faster transmission.

All that said, there’s a clear reason Buffett has allowed Apple to grow as large as it has in Berkshire Hathaway’s portfolio. Apple is a company that continues to grow revenues and profits through all economic cycles. The lesson is clear from Buffett. Even if you invest in a great company long after the story is known, the opportunity to make a lot of money still exists.