Warren Buffett Unveils Berkshire Hathaway’s Four Giants – Apple Accounts for 44% of His Stock Portfolio
Warren Buffett is always on the lookout for a wonderful company at a fair price with cash reserves of $146.7B.
At the end of February 2022, Warren Buffett shared his annual letter to Berkshire Hathaway shareholders. This annual letter has been published for over 6 decades now and reading it has become a must for all investors around the world.
In the 2022 version of this letter, Warren Buffett unveiled what he calls “Our Four Giants”. These are the four giants that drive the value of Berkshire Hathaway. Apple figures prominently in Warren Buffett's list, as he places it in second place.
It must be said that Apple represents just over 44% of Berkshire Hathaway's stock portfolio at the end of 2021. It is clear that Warren Buffett is a big fan of Tim Cook's work as CEO of Apple:
“Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well.”
The Oracle of Omaha particularly liked Apple's 2021 share buyback strategy. This gave the conglomerate increased ownership of every dollar of the iPhone maker's profits without the investor having to lift a finger:
“Apple – our runner-up Giant as measured by its year-end market value – is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier. That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job.”
Berkshire Hathaway's venture with Apple began in 2016 under the influence of Buffett's investing deputies Todd Combs and Ted Weschler. By mid-2018, Berkshire Hathaway owned 5% of the iPhone maker. That represented $36B at the time. Today, Warren Buffett's investment in Apple represents around $150B, or 44% of Berkshire Hathaway's portfolio. An investment as Warren Buffett likes it.
Looking at Berkshire Hathaway's portfolio, it is clear that Warren Buffett is not a fan of the diversification advocated by some. If Berkshire Hathaway's stock portfolio includes just under 50 companies, the first 4 companies in the portfolio alone represent 72% of the portfolio. These are Apple, Bank of America, American Express, and Coca-Cola.
The top ten companies represent 87% of the portfolio. There is no need to over-diversify when you can pick the right companies like Warren Buffett to make big profits.
Coming back to the “Four Giants” that Warren Buffett talks about in his annual letter to Berkshire Hathaway investors, Berkshire's cluster of insurers is just ahead of Apple. The iPhone manufacturer pays him an average of $775M in dividends. In third place, Warren Buffett talks about his railroad business BNSF (Burlington Northern Santa Fe), while energy segment BHE (Berkshire Hathaway Energy) appears as the fourth giant of Berkshire Hathaway. BNSF and BHE have posted record earnings in 2021:
“BNSF, our third Giant, continues to be the number one artery of American commerce, which makes it an indispensable asset for America as well as for Berkshire. BHE has become a utility powerhouse and a leading force in wind, solar and transmission throughout much of the United States.”
Final Thoughts
Everything is going well for Berkshire Hathaway, which will have had a 45% increase in operating earnings in Q4 2021. Warren Buffett has decided to buy back a record $27 billion worth of Berkshire shares in 2021, which confirms that the Oracle of Omaha prefers to bet on his company in a stock market that he considers too expensive.
Finally, Berkshire Hathaway is always on the lookout for opportunities with a cash reserve that has reached a record $146.7B by the end of 2021. The trick is to find a wonderful company at a fair price for Warren Buffett.
Some reading
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