Apple one of 'Four Giants' in Berkshire Hathaway's investment portfolio

AppleInsider

Apple is Berkshire Hathaway's second of "Four Giants" defining the investment firm's value, Warren Buffett has outlined, with the iPhone maker only behind a "cluster of insurers" in importance.

Warren Buffett is closely affiliated with Berkshire Hathaway's ownership of part of Apple, and is a great admirer of the tech giant. In an annual letter to Berkshire shareholders, Buffett again praises Apple, as well as CEO Tim Cook.

The letter is an annual offering from Buffett and Berkshire Hathaway, and has repeatedly heaped adoration on Apple.

Described as "our runner-up Giant" by Buffett, as measured by its year-end market value, Apple is "a different sort of holding" for Berkshire Hathaway, at least in terms of its so-called "Four Giants" that make up a large chunk of the firm's value. Apple lies second in importance, behind a "cluster of insurers" that Berkshire "effectively owns 100% of" in its books.

Unlike the insurers cluster, Berkshire's ownership is "a mere 5.55%," which is up slightly from 5.39% one year ago. Buffett points out that while "that increase sounds like small potatoes," shareholders must consider that "each 0.1% of Apple's 2021 earnings amounted to $100 million."

That increase was also natural to Berkshire, as it didn't have to spend any funds to gain that increase in shareholding. "Apple's repurchases did the job."

In accounting for Apple in its holdings, Buffett adds that "only dividends from Apple are counted in the GAAP earnings Berkshire reports." Last year, Apple paid Berkshire approximately $785 million in dividends, while its "share" of Apple's earnings amounted to $5.6 billion.

A lot of the earnings was used in share repurchases, "an act we applaud" according to the famed investor.

The letter takes a moment to credit Tim Cook as a "brilliant CEO" heading up Apple. Cook "quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim's managerial touch as well," Buffett writes.

Buffett has previously called Cook a "fantastic manager" of Apple, and "one of the best managers in the world."

Apple appears in a second part of the letter, referring to investments made in other companies. Apple sits among the top 15 largest investments held by Berkshire, with the investment firm's total equity of investments carried at market worth $350.7 billion.

For Apple specifically, 907 million shares cost Berkshire approximately $31 billion to acquire over time, but has a market value of $161.2 billion. In effect, Apple makes up over 45% of the total equity investment value for the company.

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red oak

“Four Giants”.   Lol

Apple is literally 50% of BH now.  

jas99

Apple is in a class all by itself. 

Quality, stability, growth. It’s like holding gold that has unlimited upside potential. 

skingers

red oak said:

“Four Giants”.   Lol

Apple is literally 50% of BH now.  

Apple is 50% of the holdings in their equities portfolio of Brk yes, but the biggest part of their business by far is the subsidiaries they own outright.  They are a massive conglomerate of businesses that made net earnings of 90 Billion last year.  Apple paid a total of 14.5 Billion in dividends to all stockholders so Brk would have seen about 785 Million of that in 2021 for their stake.  Since they did not sell any Apple stock in 2021 that means that 89.2 Billion came from non-apple elements of Brk.  So 50% of the stocks portfolio yes, but nowhere near "50% of BH".

hydrogen

I Think BH will invest in just one company : guess which one ?

GeorgeBMac

hydrogen said:

I Think BH will invest in just one company : guess which one ?

Buffett laments lack of good investments even as Berkshire profit sets record

Feb 26 (Reuters) - Warren Buffett on Saturday signaled he will stick to his knitting, bemoaning the lack of good investment opportunities for Berkshire Hathaway Inc (BRKa.N) as it sits on a massive pile of cash even after repurchasing a huge amount of its own stock.

carnegie

skingers said:

red oak said:

“Four Giants”.   Lol

Apple is literally 50% of BH now.  

Apple is 50% of the holdings in their equities portfolio of Brk yes, but the biggest part of their business by far is the subsidiaries they own outright.  They are a massive conglomerate of businesses that made net earnings of 90 Billion last year.  Apple paid a total of 14.5 Billion in dividends to all stockholders so Brk would have seen about 785 Million of that in 2021 for their stake.  Since they did not sell any Apple stock in 2021 that means that 89.2 Billion came from non-apple elements of Brk.  So 50% of the stocks portfolio yes, but nowhere near "50% of BH".

Berkshire's Apple holdings account for more than a third of those reported net earnings from last year.

Based on GAAP, Berkshire reports unrealized equity gains (and losses) as current earnings. That's the biggest reason its earnings are so volatile; it's something Mr. Buffett complains about.

Of the $91 billion in net earnings that Berkshire reported for 2021, around $64 billion came from investment gains - the vast majority of which were unrealized. That doesn't include interest and dividends. Around $33 billion came from unrealized Apple gains. Non-GAAP measures, not counting unrealized gains, would look quite different of course.

Over the last 3 years Berkshire has around $270 billion in reported pre-tax earnings. Its Apple holdings account for around $130 billion of those earnings. For 2020, Berkshire's earnings from its Apple holdings accounted for more than Berkshire's total reported net earnings. In other words, without its Apple-related earnings (most of which came from unrealized gains), Berkshire would have reported a pre-tax loss for the year. Again, that's because of GAAP. It wouldn't have been a fair reflection of Berkshire's businesses - though its non-equity businesses did struggle in 2020.

All that said, yes, Apple isn't really 50% of Berkshire. It represents less than half of the value of Berkshire's equity holdings and less than a quarter of Berkshire's market cap.

skingers

carnegie said:

skingers said:

red oak said:

“Four Giants”.   Lol

Apple is literally 50% of BH now.  

Apple is 50% of the holdings in their equities portfolio of Brk yes, but the biggest part of their business by far is the subsidiaries they own outright.  They are a massive conglomerate of businesses that made net earnings of 90 Billion last year.  Apple paid a total of 14.5 Billion in dividends to all stockholders so Brk would have seen about 785 Million of that in 2021 for their stake.  Since they did not sell any Apple stock in 2021 that means that 89.2 Billion came from non-apple elements of Brk.  So 50% of the stocks portfolio yes, but nowhere near "50% of BH".

Berkshire's Apple holdings account for more than a third of those reported net earnings from last year.

Based on GAAP, Berkshire reports unrealized equity gains (and losses) as current earnings. That's the biggest reason its earnings are so volatile; it's something Mr. Buffett complains about.

Of the $91 billion in net earnings that Berkshire reported for 2021, around $64 billion came from investment gains - the vast majority of which were unrealized. That doesn't include interest and dividends. Around $33 billion came from unrealized Apple gains. Non-GAAP measures, not counting unrealized gains, would look quite different of course.

Over the last 3 years Berkshire has around $270 billion in reported pre-tax earnings. Its Apple holdings account for around $130 billion of those earnings. For 2020, Berkshire's earnings from its Apple holdings accounted for more than Berkshire's total reported net earnings. In other words, without its Apple-related earnings (most of which came from unrealized gains), Berkshire would have reported a pre-tax loss for the year. Again, that's because of GAAP. It wouldn't have been a fair reflection of Berkshire's businesses - though its non-equity businesses did struggle in 2020.

All that said, yes, Apple isn't really 50% of Berkshire. It represents less than half of the value of Berkshire's equity holdings and less than a quarter of Berkshire's market cap.

Well TIL.  

This really flies in the face of their "buy good stocks and hold" philosophy so I can see why he doesn't like this rule, it's ridiculous.

Even with this imaginative accounting Apple would be around 1/3 of the earnings of Brk in 2021 and a significant drag on their earnings YTD this year!  

Thanks for the education though!

By either measure - not 50% of Brk and "1 of 4 giants" is a very good description

GeorgeBMac

skingers said:

carnegie said:

skingers said:

red oak said:

“Four Giants”.   Lol

Apple is literally 50% of BH now.  

Apple is 50% of the holdings in their equities portfolio of Brk yes, but the biggest part of their business by far is the subsidiaries they own outright.  They are a massive conglomerate of businesses that made net earnings of 90 Billion last year.  Apple paid a total of 14.5 Billion in dividends to all stockholders so Brk would have seen about 785 Million of that in 2021 for their stake.  Since they did not sell any Apple stock in 2021 that means that 89.2 Billion came from non-apple elements of Brk.  So 50% of the stocks portfolio yes, but nowhere near "50% of BH".

Berkshire's Apple holdings account for more than a third of those reported net earnings from last year.

Based on GAAP, Berkshire reports unrealized equity gains (and losses) as current earnings. That's the biggest reason its earnings are so volatile; it's something Mr. Buffett complains about.

Of the $91 billion in net earnings that Berkshire reported for 2021, around $64 billion came from investment gains - the vast majority of which were unrealized. That doesn't include interest and dividends. Around $33 billion came from unrealized Apple gains. Non-GAAP measures, not counting unrealized gains, would look quite different of course.

Over the last 3 years Berkshire has around $270 billion in reported pre-tax earnings. Its Apple holdings account for around $130 billion of those earnings. For 2020, Berkshire's earnings from its Apple holdings accounted for more than Berkshire's total reported net earnings. In other words, without its Apple-related earnings (most of which came from unrealized gains), Berkshire would have reported a pre-tax loss for the year. Again, that's because of GAAP. It wouldn't have been a fair reflection of Berkshire's businesses - though its non-equity businesses did struggle in 2020.

All that said, yes, Apple isn't really 50% of Berkshire. It represents less than half of the value of Berkshire's equity holdings and less than a quarter of Berkshire's market cap.

Well TIL.  

This really flies in the face of their "buy good stocks and hold" philosophy so I can see why he doesn't like this rule, it's ridiculous.

Even with this imaginative accounting Apple would be around 1/3 of the earnings of Brk in 2021 and a significant drag on their earnings YTD this year!  

Thanks for the education though!

By either measure - not 50% of Brk and "1 of 4 giants" is a very good description

GAAP is an accepted set of accounting principles established to avoid fraud and put everybody on the same page using the same rules.  

The ability to not report unrealized (meaning un-liquified) earnings is used to dodge taxes by many.  But it does not reflect their actual value -- which is what GAAP is designed to do (as much as that is possible).

GAAP allows for the reduction in value of an asset as it ages or is used up.  Likewise, it allows for the increase in the value of an asset when its value increases. 

GAAP is consistent both ways.   It is not "creative".

carnegie

Berkshire just reported a $44 billion net loss for the second quarter. For the same quarter last year it reported net earnings of $28 billion. This volatility is mostly the result of the silly change in GAAP rules that took effect a few years ago.

A huge portion of Berkshire's reported loss came from its Apple position which saw a reduction in value (without tax impact accounting) of $34 billion in the second quarter.