Billionaire investor Warren Buffett, chairman of Berkshire Hathaway, talks on a cell phone during an interview in New York, USA, on Wednesday, June 25, 2008.
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Warren Buffett’s effortless rating on Apple could end up being one of his most lucrative investments, earning more than $ 1[ads1]20 billion on paper as the technology giant broke another record to top a $ 3 trillion market value this week.
Berkshire Hathaway began buying Apple shares in 2016, and in mid-2018, the conglomerate accumulated a 5% stake in the iPhone maker, a $ 36 billion stake. Blink until 2022, and the Apple investment is now worth 160 billion dollars as the massive rally is extended into the new year.
“It’s without a doubt one of the strongest investments Berkshire has made in the last decade,” said James Shanahan, Berkshire analyst at Edward Jones.
Aside from Apple’s gigantic rise in share price, it has also been a lucrative bet for Berkshire due to its hefty payouts. Berkshire has had regular dividends, averaging around $ 775 million annually.
Buffett’s aversion to high-flying technology stocks has been well-documented for decades, but the “Oracle of Omaha” has warmed up to the sector over the past decade with the help of investment firm Todd Combs and Ted Weschler. Berkshire’s Apple stake now accounts for more than 40% of the stock portfolio, according to InsiderScore.com calculations. The conglomerate is Apple’s largest shareholder, outside index and exchange traded fund providers.
The billionaire investor has called Apple Berkshires “third largest business”, after insurance and railroad interests. Buffett previously said that the iPhone is a “paste” product, which keeps people within the company’s ecosystem.
“It’s probably the best business I know in the world,” Buffett said in a CNBC interview in February 2020. “I do not think of Apple as a stock. I think of it as our third business.”
But you will hardly hear from Buffett shouting about the winning trade since it is not his style, and he is often quick to point out when stocks appreciate that the gains are not real yet and subject to further fluctuations.
Nevertheless, the investor has realized some of that profit in real terms over the years. Since 2018, Berkshire has cut Apple property slightly, while the conglomerate invested $ 11 billion in 2020. However, due to Apple’s buyback programs, which shrank the number of outstanding shares, Berkshire’s total stake in the technology company has actually increased.
“Berkshire’s investment in Apple clearly illustrates the power of repurchases,” the conglomerate said in its 2020 annual report. [in 2020] – voila! – Berkshire now owns 5.4% of Apple. This increase was free of charge for us, because Apple has continuously repurchased its shares, thus reducing the number of outstanding significantly. “
“But that’s far from all the good news. Because we also bought back Berkshire shares over the 2 1⁄2 years, you now indirectly own as much as 10% more of Apple’s assets and future earnings than you did in July 2018, “said Berkshire in the report.
The investment in the technology giant played a crucial role in helping the conglomerate cope with the Covid-19 crisis in 2020, as other pillars of the business, including insurance and energy, were hit hard.