19.6% of Buffett’s Berkshire Is In 1 Stock

With an $863 billion market capitalization, Berkshire Hathaway is not the largest company in the world, not by a long shot. That title goes to Microsoft with Apple a close second. Both tech giants are about 3x larger than Buffett’s firm but what the Oracle of Omaha has built is the largest company by revenues.

Those revenues are a conglomeration of sales from numerous businesses, including everything from Berkshire’s railroad to See’s Candies. When you sum up all the companies that Berkshire either owns wholly or has a majority stake in, the number amounts to nearly 75. And yet in spite of the broad diversification, just one company dominates Berkshire’s market capitalization, Apple.

Key Points

• Before the iPod and iPhone, Apple was a company that sold many SKUs and competed on price.
• Until Apple built a brand advantage that translated to pricing power, Buffett would not have been interested in taking a stake.
• Now that Apple has grown to become a brand leader with high gross margins, customer loyalty and low churn, Buffett has taken a massive stake.

Why Buffett Wouldn’t Have Touched Old Apple

One reader asked us recently what happened to Apple that caused it to move from a low share price that didn’t oscillate much for years to become a gigantic tech enterprise that continually rises, seemingly without pause.

Back in the old days, Buffett would probably not have touched Apple stock. At the time, before Steve Jobs came back, Apple could be described as more akin to HP than the firm it looks like today. That’s because it produced a wide variety of products that were heavily commoditized. It was a game of volume. And it relied on an ever growing list of SKUs to grow revenues. That’s not the type of business that attracts Buffett.

It wasn’t until Steve Jobs came back into the fold that a different vision for Apple was created. Instead of building lots of products that were competing on price, Jobs wanted to cut them all and focus on just one, the iPod, a music device, that would later turn into the iPhone. It was believed by some to be a risky bet, the type that would make or break the company. But if he succeeded, a brand would be created, and that meant pricing power.

Even as Jobs succeeded in building a music device that won over consumers, Buffett didn’t bite. Indeed it wasn’t until 8 years after the launch of the iPhone that he first took a stake in Apple, highlighting that making money doesn’t require being first, just patient for the right opportunity. Since then his gains are over 4x on this one investment.

Why Buffett Went All In?

With his Apple stake representing close to $170 billion now, Buffett has clearly gone all in on this one company and it’s clear why. Other than Microsoft, Apple’s margins are among the best of any technology firm, and the reason is clear. Apple has a brand advantage that Buffett loves, and which commands premium pricing.

It also has low customer churn, high loyalty and a growing eco-system. While new products like the Vision Pro are likely to provide a tailwind to revenues, alone they are not the reason Buffett bought the firm.

Instead, the ability of Apple to continually hike prices and not hurt demand is why Buffett gravitated to the business. He’s such a fan now that he commented the one time he did sell some of his stake it was likely a mistake. That alone highlights it’s unlikely he plans to sell any more of his stake anytime soon.

So, even though Apple represents about one fifth of the market cap of Berkshire as a whole, it seems Buffett is very comfortable with the risk and believe there is more to come.