For nearly 60 years, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been running circles around Wall Street’s major stock indexes. Since ascending to the CEO chair inside the mid-Nineteen Sixties, he’s overseen an aggregate return of greater than 5,350,000% for Berkshire’s Class A shares (BRK.A), as of the closing bell on July 18. This works out to an annualized return or nearly 20% over six an extended time.
Returns of this magnitude over such a lengthy timeframe are virtually unheard of, which is why the “Oracle of Omaha” garners so much attention on Wall Street. Some 40,000 people flock to Omaha, NE, every 12 months for a probability to hearken to Buffett speak with reference to the U.S. economy, his investment philosophy, and the stocks he favors.
If there’s one investing trait that’s been vital to Buffett’s success as CEO of Berkshire Hathaway, it’s portfolio concentration. Billionaire Warren Buffett and the late, great Charlie Munger have long favored putting an outsized percentage of Berkshire’s capital to work of their best ideas. As of last week, 75% of Berkshire’s $416 billion investment portfolio was invested in just five unstoppable stocks.
Yet what might come as a surprise is that Buffett’s biggest investment — $77 billion in under six years — and favorite stock to buy doesn’t show up in Berkshire’s investment portfolio.
Apple is Berkshire’s top holding, but not its largest cost basis
Despite Buffett and his team of advisors (Todd Combs and Ted Weschler) selling almost 126.2 million shares of tech stock Apple (NASDAQ: AAPL) in the midst of the combined fourth quarter and first quarter, Berkshire’s top holding still accounts for greater than 43% of its invested assets.
During Berkshire Hathaway’s most recent annual meeting, Buffett attributed this selling activity as being tax-related and never representative of him or his team losing faith in Apple. In point of fact, Buffett has previously referred to his company’s top holding as “a greater business than any we own.” Perhaps it just isn’t surprising that the remaining 789.4 million shares of Apple owned by Berkshire have a mammoth estimated cost basis of greater than $31 billion.
Although the Oracle of Omaha just isn’t a very powerful fan of investing in tech stocks or buzzy innovations, he does understand consumer behavior, the power of branding, and a high-quality management team when he sees one.
Apple finds itself at the very best of the pecking order in domestic smartphone market share. Since introducing 5G-capable iPhones in 2020, it’s accounted for a 50% or greater share of the market. It is usually made strides in personal computing, with Mac gaining market share inside the U.S. throughout the last three years.
Nevertheless, CEO Tim Cook just isn’t satisfied with Apple simply being a physical product innovator. Cook is spearheading a multiyear shift that’s seen Apple focus its efforts on subscription services. A services-driven operating model should improve the company’s operating margin over time and help keep customers inside its ecosystem of services.
Lastly, Apple’s share repurchase program is unrivaled amongst publicly traded corporations. Since kicking off its buyback program in 2013, the world’s largest publicly traded company has bought back $674 billion price of its common stock. Share repurchases are increasing Berkshire’s stake in Apple without Buffett or his crew having to do a thing.
Buffett has spent a small fortune buying shares of his favorite stock
The estimated $31.3 billion that’s been spent buying shares of Apple is bigger than the Oracle of Omaha and his team have put to work in Chevron, Occidental Petroleum, Bank of America, and one other core holding in Berkshire Hathaway’s portfolio.
Yet this $31.3 billion investment in Apple is lower than half the amount Warren Buffett has spent buying shares of his favorite stock.
The reason you don’t hear about Buffett’s favorite stock all that sometimes is since you is not going to find it in the company’s quarterly Form 13F filing with the Securities and Exchange Commission. A 13F is where investors look to see what stocks Wall Street’s brightest (and richest) money managers were buying and selling probably the most recent quarter.
For details on Warren Buffett’s favorite stock to buy, investors must dig into Berkshire Hathaway’s quarterly operating results. On the final word page of each report, just prior to the manager certifications, you can see detailed trading activity on share repurchases. That is true… billionaire Warren Buffett’s top stock to buy throughout the last six years has unquestionably been shares of his own company.
Since Berkshire Hathaway doesn’t pay a dividend, repurchasing stock is one in all the most effective ways to reward the company’s long-term investors. Nevertheless, buying back stock hasn’t in any respect times been easy.
Prior to mid-July 2018, Buffett and Charlie Munger had their hands tied when it came to buybacks. Repurchases were only allowed if Berkshire’s stock fell to or below 120% of book value, which hadn’t occurred for a protracted, long time. This meant not a penny was put toward buybacks.
On July 17, 2018, Berkshire Hathaway’s board altered the standards governing share repurchases to make it easier for its dynamic duo of Buffett and Munger to return back off the bench and work their magic. The board decreed that buybacks could proceed without an end date or ceiling as long as:
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Berkshire Hathaway has on the very least $30 billion in money, money equivalents, and U.S. Treasuries on its balance sheet; and
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Warren Buffett (and Charlie Munger) consider shares are intrinsically low price.
Because “low price” is subjective, and Berkshire’s money pile has been growing with consistency for years, Buffett has overseen greater than $77 billion price of buybacks over 23 consecutive quarters. This dwarfs the amount of capital put to work in Apple.
One clear advantage of this aggressive repurchase policy is that it’s incrementally increasing the ownership stakes of Berkshire Hathaway’s shareholders. The Oracle of Omaha and the late Munger have in any respect times preached a long-term ethos, and a delicate stream of buybacks actually supports this approach.
A mild food regimen of share repurchases must also reduce Berkshire’s outstanding share count. For companies with rising net income, buybacks can increase earnings per share (EPS), which can improve their attractiveness to fundamentally focused investors.
With Berkshire Hathaway potentially tipping the scales at north of $200 billion in combined money, money equivalents, and U.S. Treasuries as of the tip of June 2024, seek for Buffett to proceed mashing the buy button on his favorite stock.
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Bank of America is an promoting partner of The Ascent, a Motley Idiot company. Sean Williams has positions in Bank of America. The Motley Idiot has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Idiot recommends Occidental Petroleum. The Motley Idiot has a disclosure policy.
Billionaire Warren Buffett Has Purchased $77 Billion of His Favorite Stock, Which Is More Than Double What He’s Spent Buying Shares of Apple! was originally published by The Motley Idiot