Arguably no money manager garners more attention on Wall Street than Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. During his nearly 60 years as CEO, he's overseen an aggregate return in his company's Class A shares (BRK.A) of more than 5,500,000%!
Lengthy books have been written detailing the Oracle of Omaha's investing philosophy. Generally, Buffett is attracted to time-tested, profitable businesses, with strong management teams, well-defined competitive advantages, and established capital-return programs.
But the factor that doesn't get nearly enough credit for Berkshire Hathaway's continued long-term outperformance is Buffett's decision to concentrate his company's investment portfolio. Despite holding stakes in 43 stocks and two exchange-traded funds (ETFs), approximately 62% ($192.7 billion) of Berkshire's $313 billion portfolio can be traced to just four magnificent holdings.
For years, tech goliath Apple (NASDAQ: AAPL) has sat atop the pedestal as the largest holding in the portfolio Warren Buffett oversees at Berkshire -- but there have been significant changes since October 2023. Specifically, Buffett and his team have sold more than 515 million shares of Apple and reduced their company's position to an even 400 million shares.
In May, during Berkshire's annual shareholder meeting, Buffett suggested that corporate tax rates were likely to climb, and used this as something of a pivot to explain his company's recent selling of Apple stock. He believes shareholders will, in hindsight, value Berkshire Hathaway locking in sizable gains at a lower tax rate.
Despite being a big-time seller of Apple shares, Buffett still thinks highly of his company's top holding. Apple is a valuable, well-known brand that has a loyal customer base. Further, CEO Tim Cook is spearheading a multiyear plan that's refocused his company on subscription services. A platform-based operating model should lead to higher margins over time, as well as smooth out the revenue peaks and valleys that typically accompany iPhone replacement cycles.
This is also a good time to mention that Apple sports the largest capital-return program among public companies. Since initiating a share repurchase program in 2013, Apple has bought back $700.6 billion worth of its common stock and reduced its outstanding share count by more than 42%. This has had a meaningfully positive impact on its earnings per share (EPS).
However, Apple is also historically pricey at 35 times trailing-12-month EPS, and its physical product sales have stagnated, including iPhone. Since Buffett is an ardent value investor, this may have played a role in paring down his company's stake by north of 515 million shares over nine months.