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Warren Buffett's out-of-character bet on Apple might turn out to be one of his most profitable investments, as the tech giant surpassed yet another record this week, surpassing a market capitalization of $3 trillion.
“Without a doubt, it is one of the strongest investments that Berkshire has made in the last decade,” said James Shanahan, Berkshire analyst at Edward Jones.
Apple has been a profitable gamble for Berkshire Hathaway, not just because of its huge share price increase, but also because of its large payments. Berkshire has consistently paid out dividends, averaging around $775 million every year.
“It’s probably the best business I know in the world,” Buffett said in a CNBC interview in February 2020. “I don’t think of Apple as a stock. I think of it as our third business.”
Buffett, on the other hand, isn't inclined to brag about his successful transaction since that's not his style, and he's generally quick to point out that when stocks rise, the gains aren't genuine yet and are vulnerable to future volatility.
Nonetheless, over time, the investor has realized part of that profit in real terms. Berkshire Hathaway has been gradually reducing its Apple holding since 2018, with the company expecting to earn $11 billion in 2020. Berkshire's total interest in Apple has increased as a result of Apple's share repurchase operations, which have reduced the number of outstanding shares.
“Berkshire’s investment in Apple vividly illustrates the power of repurchases,” the conglomerate said in its 2020 annual report. “Despite that sale [in 2020] – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding.”
“But that’s far from all of the good news. Because we also repurchased Berkshire shares during the 2 1⁄2 years, you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018,” Berkshire said in the report.
The investment in the tech behemoth was critical in helping the conglomerate weather the Covid-19 crisis in 2020, when other parts of its company, including as insurance and energy, took a blow.
