Finding The Next Apple Using Warren Buffett’s Logic

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On the heels of Apple’s latest earnings report, the Wall Street Journal published an article titled “Apple is Buffett’s Best Investment,” which discusses how Apple became an oversized investment of Warren Buffett’s company, Berkshire Hathaway.

Given their success with Apple shares, it’s worth understanding the logic that drove Buffett to accumulate such a large position in Apple.

Todd Combs, a member of the Berkshire portfolio management team, is responsible for bringing Apple to Buffett’s attention. However, not all credit goes to Combs. Buffett presented Combs with a challenge that ultimately highlighted Apple’s value proposition. With this same challenge, I will take a stab at finding the next Apple.

Berkshire’s massive stake in Apple

Before finding the next Apple stock, it’s worth visualizing how Berkshire’s investment in Apple has grown over time, both as a percentage of Berkshire Hathaway’s total portfolio and of Apple’s total shares outstanding.

The bar graph below compares Berkshire’s percentage ownership of Apple to that of the four largest mutual fund and ETF complexes. Berkshire had no position in Apple in 2015 and now holds over five percent of the company. Only Vanguard has a more significant position.