Buffett's portfolio concentration may be justified

Buffett's portfolio concentration may be justified

Warren Buffett is regarded as one of the greatest investors of all time. If you invest $10,000 in Berkshire Hathaway's A shares 30 years ago, you'd have about $330,000 today. That's an amazing return, and it makes many investors interested in how Buffett and his team generated those results.

While Berkshire Hathaway owns companies that investors cannot purchase shares in because they are not publicly traded, it also has a large investment portfolio that many turn to for ideas. Apple is the biggest holding in its portfolio, with a net worth of 46%. Should investors follow Oracle of Omaha's example?

Berkshire Hathaway's portfolio has included Apple as a star performer.

When Berkshire Hathaway first bought Apple stock in the first quarter of 2016, I don't think anyone knew of the upside it contained. With a stock value exceeding 600% from the beginning of 2016 to today, Apple's stock has surpassed the market by more than 600%. This performance also helped Berkshire Hathaway's returns, as the stock has surged 176% compared to the S&P 500's 141% rise.

Do you think that extreme portfolio concentration can be warranted? Why or why not? Investors have been sceptical in telling Buffett that portfolio concentration isn't a big deal if you know what you're doing. He added that investors only have a few great investments over their careers, and being concentrated helps those investments shine.

While it may play well for some investment rock stars, it may not be a wise direction for an individual investor who occasionally glances at their portfolio. As a result, 46% concentration in one stock probably isn't wise for many investors. In addition, Buffett did not just go out and buy a 46% stake. As he became more confident in his stock, he started in smaller pieces and added to it.

If a stock in your portfolio performs without a massive thesis change, it may be a smart stock to add to your portfolio.

Will Apple be good for Buffett?

The stock isn't as cheap as it once was.

In Q1 2023, Berkshire Hathaway bought 20 million shares of Apple. Buffett, however, still believed Apple was an investment. Apple is no longer the crazy deal that it was seven years ago, with valuation of its product more than tripled.

With its trading volume exceeding 29 times earnings, Apple is far from a cheap stock. With Apple's declining revenue, it looks like a stock that may have reached its peak.

The drop in iPhone sales has led to a decline in demand for the gadget. For many years, consumers rushed out to buy the latest phone generation, resulting in the original purchase of Berkshire Hathaway's original purchase.

Although consumers don't upgrade their devices more frequently, the sales cycle has become a longer one.

While Apple has a massive global market potential to grab, there are a lot of people who don't own an iPhone, so the upside remains, although not exactly at the levels presented in 2016 (2016).

With the stock trading at an expensive level and sales growth, there are much better places for investors to park their money than in Apple.