In the first quarter of 2016, Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) started buying shares of Apple (AAPL, Financial). This was a surprising move, as many people who follow Buffett will know that he has historically stayed away from the tech sector, one he has repeatedly said that he does not understand.
A previous investment in IBM (IBM, Financial) ultimately worked out to be a loser for the Berkshire Hathaway portfolio, although when Buffett finally sold the position towards the end of 2017, it had produced a positive total return in excess of the return available on cash over the same period.
And since he started buying shares in the tech group, the Oracle of Omaha hasn't stopped.
After initiating a small position in the first quarter of 2016, he almost doubled his holding in the second quarter and by the fourth quarter increased Berkshire Hathaway's ownership of Apple from around 10 million shares to nearly 60 million shares.
It took less than three months for the holding to double again, and Berkshire has continued to buy ever since. At the end of the third quarter, the insurance-to-candy conglomerate owned more than 250 million shares in Apple, making it the largest position in Berkshire Hathaway's public equity portfolio, accounting for 26% of assets under management in this part of the business.
What is interesting about Berkshire's stake in Apple is where it seems to come from. Unlike most of Berkshire Hathaway's equity ideas, which come from Warren Buffett (Trades, Portfolio) and increasingly from his recently promoted investing lieutenants, it seems that Charlie Munger (Trades, Portfolio) was instrumental in pushing the Oracle of Omaha towards this uncharacteristic holding.
At the beginning of 2017, at the 2017 Daily Journal Meeting, when asked why he and Buffett had decided to get into the airline industry and start buying Apple, Munger responded:
"[Buffett’s] changed when he buys airlines and he’s changed when he buys Apple. Think of the hooey we’ve done over the years about high-tech, ‘we just don’t understand it,’ ‘it’s not our circle of competence,’ ‘worst business in the world is airlines.’ And what do we appear in the press with? Apple and a bunch of airlines. I don’t think we’ve gone crazy. I think the answer is we’re adapting reasonably to a business that’s gotten much more difficult."
"And I don’t think we have a cinch in either of those positions. I think we have the odds a little bit in our favor. If that’s the best advantage we can get, we’ll just have to live on the advantage we can get."
This statement, in my mind, shows that he clearly supports the decisions, a view that has only been reinforced by the comments he made earlier this year on CNBC. When asked about Berkshire's buying, he said, "I think we’ve been a little too restrained," before going on to say, "I wish we owned more of it."
I believe this is an excellent insight into the way Buffett and Munger work at Berkshire Hathaway. It is usually the case that Munger keeps relatively quiet about Berkshire Hathaway's investment decisions, but that he's been so vocal on Apple, shows that he thinks this is one stock worth buying. When asked whether he thought Berkshire's current holdings of Apple was enough, he merely said "no."
Munger went on to say that the company has a smart management team, and the stock is relatively reasonably priced (even though this was nearly 12 months ago).
With this being the case, it is reasonable to assume that following the recent decline in shares of Apple, Berkshire Hathaway has been increasing its position over the past few months. It will be interesting to see by how much Berkshire has increased its holdings when the company reports its positions at the end of the third quarter in the beginning of 2019.
Disclosure: The author owns shares in Berkshire Hathaway.
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