report, the Wall Street Journal shared an article discussing how Apple became such an oversized investment of Warren Buffett’s company, Berkshire Hathaway . Given their success with Apple shares, we think it is worth understanding the logic that drove Buffett to accumulate such a large position in Apple.
The bar graph below compares Berkshire’s percentage ownership of Apple to that of the four largest mutual fund and ETF complexes. Berkshire had no position in Apple in 2015 and now holds over 5% of the company. Only Vanguard has a more significant position. While it may have been a mistake not to buy more technology companies in the mid twenty-teens, Buffett was able to appreciate what Apple truly was. While it is classified as and widely considered a technology company, Buffett got his head around Apple by likening it to a consumer goods company. Per the aforementioned Wall Street Journal article:
Given Combs’ success, we thought it would be interesting to use the logic Buffett challenged Combs with and produce a similar scan. Let’s see if we can find the next Apple.The following paragraph from the WSJ article is the logic Buffett imparted to Combs, leading to their ownership of Apple. Many stocks meet the size, earnings, and sales growth criteria. But only two companies have cheap enough valuations to make the cut as shown below.), which is .20% of the portfolio. T-Mobile met our criteria, but its 5-year expected earnings growth is slightly below Buffett’s 7% bogey.Warren Buffett is an investing legend and one of the wealthiest people in the world. He takes a value orientation with a long-term investment horizon.