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Many people believe that Warren Buffett is the greatest investor of all time.Served as CEO for many years berkshire hathawayHe has made many winning investments.
Perhaps his most successful apple (AAPL -0.54%). The conglomerate first began buying stakes in his iPhone maker in the first quarter of 2016. And since the beginning of the year, the stock price has soared an incredible 615%.
Apple alone accounts for a whopping 45.7% of Berkshire’s total portfolio. Coupled with this high weighting, Market capitalization 2.9 trillion dollars and Price earnings ratio (PER) 30.4 then why Oracle of Omaha still owns Apple today.
I think there are four possible reasons for this.
Favorite event period
Buffett’s investment strategy has long focused on finding great companies and holding them for the long term. In fact, his favorite holding period is forever.
Apple has the makings of being a perennial stock. An incredibly powerful brand, economic moat. Apple also has an ecosystem that fosters continuity, as customers are also using more of the company’s software and services. These characteristics helped support the economic success of the business.
An additional benefit of having an indefinite holding period is that no taxable event occurs. This means that compound interest is not interrupted unnecessarily.
Possibility of return
When choosing a stock to invest in, you hope that the stock can beat the market over the long term. Despite its huge market capitalization and premium valuation, Buffett may believe that Apple still has the potential to generate big profits in the future.
By reinvesting dividends, S&P500 Historical returns have averaged about 10% per year. This is a difficult hurdle for most active managers to overcome. But Buffett may think Apple has a good chance of outperforming the broader index.
If that’s the case, there’s no reason for him to sell. Especially since he has owned the business for many years, he probably has some expertise in the business.
profitable capital allocation
Berkshire owns approximately 916 million shares, or 5.9% of Apple stock. This huge position brings financial windfalls.
Apple pays a dividend yield of just 0.52%. But based on the current quarterly dividend of $0.24, Buffett’s company would have received an annualized $879 million from its position in the tech giant’s stock.
Apple uses most of them. free cash flow Cancel issued shares. From the end of 2018 to the end of 2023, Berkshire’s stock count decreased by 21% due to a capital allocation policy that increased ownership.
More of the same problem
In this case, it’s very easy to see why you should sell Apple now.But let’s do it Please also consider opportunity cost. If Mr. Buffett sold all his positions today, what would Berkshire do with its roughly $170 billion in proceeds?
This huge cash injection will only exacerbate the conglomerate’s problems. The company already has $152 billion in cash, cash equivalents and Treasury bills on its balance sheet, but Buffett has done little with finding attractive investments. Apparently not. He probably has no idea what to do with the extra money he’ll get from selling Apple.
This shows that even if there is a valid argument to sell at its current size and expensive valuation, Apple still offers better return potential than holding on to cash. . Buffett may think so.
Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
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