According to recent regulatory filings, Warren Buffett’s Berkshire Hathaway nearly quadrupled its position in Apple Inc. (NASDAQ:AAPL). Should everyday investors follow suit?
In the fourth quarter of 2016, Berkshire bought a massive 42.1 million shares of Apple. That move brought its total AAPL holdings to 57.4 million shares, or 1.09% of the company’s total stock.
Owning 1% of a company doesn’t sound like too much, but that position was worth about $6.6 billion at the end of 2016. Still, that’s only a fraction of Berkshire’s entire portfolio, which is valued at approximately $155 billion.
For those of us lacking that kind of money to invest, does it make sense to follow suit? First, let’s examine why Buffett made the investment to begin with.
According to notes posted by Dr. David Kass, Buffett himself probably didn’t even make the investment. Instead, it was a couple of his trusted employees that are largely in charge of Berkshire’s technology investments:
“Ted (Weschler) and Todd (Combs) each have about $9 billion to invest. One or more invested in Apple. With Apple, people get hooked on things that they like. [Buffett] has a competitive edge within his circle of competence (which does not include tech companies). His circle grows wider over time but outside of his circle tech people know better than he does. [Buffett] mentioned that he did not invest in Microsoft even though it had no cost of goods sold and was earning a ‘royalty on the world’ since the world needed its operating system.”
The fact that Buffett himself didn’t make the investment shouldn’t worry anyone, however. The Oracle has the final say on every move the company makes, and he gave his seal of approval to allocate billions into Apple shares.
Buffett loves companies that have a competitive advantage like he does. Apple certainly falls under that category — its massive installed user base for its devices (on which it books huge margins, by the way) opens up many doors for future growth.
Apple is also extremely cash rich — another quality Buffett admires. That’s because a company with tons of cash can afford to be very generous with share buybacks and dividends, not to mention grow via acquisitions.
Historically, Apple has shied away from too many big purchases, preferring to absorb smaller firms whose technology it can leverage in its own products and services. But that doesn’t mean it’ll operate like that forever. In fact, there are many potential major acquisitions out there for Apple, all easily attainable given its cash position and creditworthiness.
There simply isn’t another company in the history of the world that can match Apple’s size, reach, margins, cash, and customer affinity. With the iPhone 8 reportedly on the horizon this year, we may be entering the firm’s next golden age.
And all of these things mean that the stock is absolutely worth following Buffett into.
Apple Inc. (NASDAQ:AAPL) was trading at $135.17 per share on Wednesday morning, up $0.15 (+0.11%). Year-to-date, AAPL has gained 16.71%, versus a 4.80% rise in the benchmark S&P 500 index during the same period.