Editor’s note: This article was first published in February 2018 and reports on Warren Buffett’s letter covering 2017; Berkshire Hathaway’s profit, the size and value of its Apple stake, Apple’s cash reserves and Berkshire’s other holdings are all figures from early 2018.
As every year, Warren Buffett’s eagerly awaited annual letter to shareholders has arrived. It is shorter than usual, mind you, but more direct than on other occasions. In it he talks about his biggest bet in 2018 and about the situation of investors and his recommendation for them.
While some media outlets are starting to talk about the danger of a price bubble in US stocks, Buffett believes it would be better to ignore certain news and one-off market moves, such as what may have been the biggest intraday price drop in the last seven years. There is simply no way of knowing how far stocks can fall in a short period, Buffett says, while he keeps betting on the stock market.
It is worth remembering that Berkshire Hathaway, Warren Buffett’s flagship company, earned USD 44.94 billion last year, although Buffett himself acknowledges that not all of it was the company’s own doing this time, since a large part of the profits came from Donald Trump’s tax boost.
Is it still a good idea to buy Apple shares?
Buffett thinks so. In fact, his company increased its position in Apple by more than 31 million shares, bringing its total to 165 million Apple shares. To put it another way, Berkshire Hathaway has more than USD 29 billion invested in Apple, one of Buffett’s favourite stocks.
Even though Buffett is not known for being a lover of tech companies, he admits he is in love with Apple and says he has not sold a single share in the company. Quite the opposite: he has kept increasing his position.
See also: How Warren Buffett multiplied his money tenfold in 1963 thanks to the salad oil scandal
For Buffett, Apple is not just another tech company
Although most investors think of Apple as a technology company because it depends on technological components, Buffett analyses it as if it were a consumer company.
In an interview with CNBC, Buffett said that Apple has an extraordinary consumer franchise and that he can see how strong its ecosystem is, to an extraordinary degree: users become very, very attached to the product they use, at least psychologically and mentally, and the iPhone is a very “sticky” product.
We could say that the only tech companies Buffett holds in his portfolio are IBM and Apple.
We should bear in mind that, as things stand, nothing suggests Apple has problems of any kind; you could say its only problem is that it has USD 250 billion in cash. No other company has ever reached that figure.
Buffett believes Apple has an excellent management team and creative talent, so it will have no trouble continuing to grow its sales and profits.
In a previous article we included Apple among the 3 companies that will dominate the world. Nothing today makes us think otherwise.
What are Warren Buffett’s other favourite stocks?
If we look at the largest positions in Berkshire’s portfolio, we find Wells Fargo and Bank of America, where, according to Buffett’s letter, it holds shares worth a total of USD 170 billion.
In June last year we reported on Buffett’s investment in Store Capital Corp, a real estate company. Buffett acquired 18.6 million shares in the company.
See also: The 4 phases of a financial bubble
The USD 32 billion invested in Precision Castparts, a maker of metal components for the aerospace market, shows that the legendary investor has an interest in the new space age.
Buffett also did not let the investment in Pilot Travel Centers slip away, taking almost 39% control of this company, the largest operator of highway service areas. It is an investment Buffett does not rule out gradually increasing, given how well the company is performing.
Buffett says he is still looking for elephants to hunt.
See also: 5 things to learn from Charlie Munger, Warren Buffett’s right-hand man
Featured image: Nils Huenerfuerst, CC0 1.0, via Wikimedia Commons.
