Warren Buffett Says Berkshire's Apple Investment Shows The 'Power Of Repurchases'

Berkshire Hathaway Inc (NYSE: BRK-A) (NYSE: BRK-B) CEO Warren Buffett over the weekend wrote his annual letter to shareholders and highlighted the “power of repurchases” using Apple Inc (NASDAQ:AAPL) as an example.

What Happened: Buffett said that Berkshire began buying shares of the iPhone maker in late 2016 and by early June 2018 owned more than one billion shares (adjusted for splits). 

“Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple,” wrote the veteran investor.

The cost for acquiring that stake was $36 billion and since then Berkshire has enjoyed regular dividends averaging about $775 million annually and has pocketed an extra $11 billion in 2020 by selling a small part of its holdings. 

The continuous repurchase of shares by Apple and the consequent shrinking number of shares outstanding has meant that Berkshire now owns 5.4% of the Tim Cook-led company. “That increase was costless to us,” wrote Buffett.

Why It Matters: Berkshire’s third-quarter operating profits declined 32% to $5.48 billion from $8.07 billion a year ago. The company repurchased $9.3 billion worth of stock in the period. 

Since Berkshire also repurchased its own shares during the past two and a half years, its shareholders now own a full 10% more of Apple’s assets and future earnings than they did in July 2018, wrote Buffett.

“This agreeable dynamic continues. Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future,” revealed the Oracle of Omaha.

Buffett also pointed to Apple’s publicly stated intention to repurchase shares and thus Berkshire shareholders would find “their indirect ownership of Apple increasing as well.”

This year the Buffet-led company cut its position in Apple by 6% to 887 million shares in the latest quarter but upped stakes in AbbVie Inc (NYSE:ABBV), Bristol-Myers Squibb Company (NYSE:BMY), and Merck & Co, Inc (NYSE:MRK). 

Apple still remains the single largest investment in Berkshire’s portfolio.

Price Action: Berkshire Class A shares closed nearly 0.9% lower at $364,580 on Friday. On the same day, the company’s Class B shares closed 1.3% lower at $240.51. Apple shares closed almost 0.2% higher at $121.26 and fell 0.41% in the after-hours session.

Photo courtesy: Freeimage4life via Flickr.