Warren Buffett makes over $120 billion on Apple’s rise to $3 trillion, among his best bets ever

Warren Buffett makes over $120 billion on Apple's rise to $3 trillion, among his best bets ever

Billionaire investor Warren Buffett, chairman of Berkshire Hathaway, speaks on a cell phone during an interview in New York, USA, on Wednesday, June 25, 2008.

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Warren Buffett’s unusual bet on Apple could end up being one of his most successful investments, grossing more than $ 120 billion on paper as the tech giant broke another record this week, surpassing a market valuation of $ 3 trillion.

Berkshire Hathaway began buying Apple stock in 2016, and by mid-2018 the conglomerate had accumulated 5% of the ownership of the iPhone maker, a stake that cost $ 36 billion. Flash through to 2022 and the Apple investment is now worth $ 160 billion as the massive rally extends into the new year.

“It is without a doubt one of the strongest investments Berkshire has made in the past decade,” said James Shanahan, Berkshire analyst at Edward Jones.

Aside from the huge appreciation in Apple’s stock price, it was also a lucrative bet for Berkshire because of its high payouts. Berkshire has received regular dividends averaging $ 775 million a year.

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Buffett’s aversion to soaring tech stocks is well documented, but the “Oracle of Omaha” has warmed up to the sector over the past decade, with the help of investment vicarious agents Todd Combs and Ted Weschler. Berkshire’s stake in Apple now accounts for more than 40% of its stock portfolio, according to InsiderScore.com calculations. The conglomerate is Apple’s largest shareholder, apart from index and exchange traded funds providers.

The multi-billion dollar investor has named Apple Berkshire the “third largest company” after its insurance and railroad interests. Buffett previously said the iPhone was a “sticky” product that keeps people in the company’s ecosystem.

“It’s probably the best business I know in the world,” Buffett said in a February 2020 interview with CNBC. “I don’t see Apple as a stock. I consider it our third business. “

But you probably won’t hear from Buffett crowing over the winning trade as this is not his style and he is often quick to point out that profits are not yet real and continue to fluctuate as stocks appreciate.

Nevertheless, over the years, the investor has realized part of this profit in real terms. Since 2018, Berkshire has reduced its stake in Apple slightly, with the company pocketing $ 11 billion in 2020. However, because of Apple’s buyback programs that shrank the number of its outstanding shares, Berkshire’s total stake in the tech company has actually increased.

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“Berkshire’s investment in Apple vividly illustrates the power of buybacks,” the company said in its 2020 annual report. “Despite the sale [in 2020] – voila! – Berkshire now owns 5.4% of Apple. This increase was free of charge for us because Apple has been continuously buying back its shares, significantly reducing the number of shares outstanding. “

“But that’s not all good news by a long shot. Since we’ve also repurchased Berkshire stock in those 2 1/2 years, you indirectly own 10% more of Apple’s assets and future earnings than you did in July 2018, ”Berkshire said in the report.

Investing in the tech giant played a critical role in helping the conglomerate weather the 2020 Covid-19 crisis as other pillars of its business, including insurance and energy, were hit hard.