Berkshire Hathaway’s annual letter to shareholders has praised Apple, using the iPhone maker as a demonstration of how share buybacks can be a good thing for investors. In previous announcements, Berkshire Hathaway saw Apple’s stock grow despite sales.
Berkshire Hathaway saw Apple’s stock grow
Every year, Warren Buffett’s Berkshire Hathaway writes a letter to shareholders, describing their investments and events during the past 12 months. In the 2020 letter published on Saturday, the investment firm wrote extensively about its ownership in Apple.
The company is known for its major investments over the years, and counts Apple as one of its most valuable assets. While the company’s main asset is its property and casualty insurance operation, Apple is not far behind.
“Our second and third most valuable assets – it’s pretty much a decommissioned right now – are Berkshire’s 100% ownership of BNSF, America’s largest railroad measured by freight volume, and our 5th ownership, 4% of Apple ”, writes the signature.
Berkshire Hathaway is eager to buy back shares, in the sense that its own shares “must be bought back at any price.” To demonstrate its point of view, the company uses its investment in Apple to demonstrate the power of buybacks.
“We started buying Apple shares in late 2016 and in early July 2018, we owned just over a billion Apple shares (adjusted divided),” the firm begins. “When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple.”
The cost of participation was $ 36 billion, the letter reveals, and it enjoys regular dividends that average about $ 775 million annually. It also made an additional $ 11 billion by selling a “small slice” in 2020.
“Despite that sale – voila! – Berkshire now owns 5.4% of Apple, ”the piece continues. “That increase was useless for us, because Apple has continually bought back its shares, thus substantially reducing the number it now has outstanding.”
It’s a practice that Apple will likely continue for quite some time. On February 8, Apple issued $ 14 billion in bonds, which it said would go toward repurchasing shares, among other purposes.
For Berkshire Hathaway investors, the investment firm’s own share buyback over 2.5 years has enhanced their position. “You now indirectly own 10% more of Apple’s assets and future earnings than in July 2018,” the letter boasts.
“The math of buybacks slowly fades, but it can be powerful over time,” suggests Berkshire. “The process offers an easy way for investors to own a growing share of exceptional businesses.”
According to the letter, Berkshire Hathaway owned more than 907 million shares of Apple as of December 31, 2020, at a cost of $ 31 billion. At that date, the market value of those shares was $ 120.4 billion.
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