Buffett and Apple, Sitting in a Tree…

There’s an explanation

Andrew Willis 20 July, 2020 | 7:30AM
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Andrew Willis: You may have been surprised to see headlines saying that that nearly half of Berkshire (BRK.B)’s portfolio was one single stock – Apple (AAPL). Why did Warren Buffett have so many eggs in one basket? Well, there’s an explanation.

First though, don’t compare Berkshire’s portfolio to your own. If Warren Buffett was in our shoes, he’d never hold 40% of his assets in one stock. And he doesn’t.

What many reports didn’t mention was that these were only Berkshire’s public holdings. An easy way to get a little perspective is to look at the company’s market cap. Berkshire has about 90 billion U.S. dollars in Apple stock. Take that out, and there’s plenty of market value remaining.

Now let’s take a look at Apple itself. Apple’s worth…at least a trillion U.S. dollars, and it has a cash pile that rivals Berkshire’s. With that much padding and with tech stocks performing so well, it’s not an unreasonable bet for Buffett.

He may believe it’s one of the best businesses out there, but he sees that stock as part of his business. His business cannot be your retirement portfolio. After all, it’s not even a fund. It’s just one stock.

Our portfolios are wide-reaching, including things like our homes, and they’re tailored to our own goals and risk levels. And when it comes to holding stocks, you’ll be managing two types of risk: stock-specific and market-specific, reminds Morningstar’s Director of Investment Research, Ian Tam. While these days it feels like we’re at the mercy of the market, it might be worth controlling what you can – by diversifying away any stock-specific risks. And that means investing in more than just insurance, tech, or even cash.

For Morningstar, I’m Andrew Willis

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Apple Inc223.96 USD-0.16Rating
Berkshire Hathaway Inc Class B435.98 USD0.35Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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