Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett’s financial track record is legendary. The Omaha, Nebraska, native has led his company to market-crushing success through multiple decades and informed and inspired millions of investors around the world.
Strikingly, the famous moneyman has delivered incredible returns while largely avoiding the time-honored practice of portfolio diversification. Buffett does advocate diverse holdings for less-experienced investors, calling it “protection against ignorance.” But for investors who know what they are doing, he says it makes little sense. For this experienced investor, roughly 57.4% of Berkshire’s $367.5 billion portfolio is concentrated in just two stocks.
Read on as two Motley Fool contributors explain why Buffett has placed huge bets on a duo of industry-leading companies.
Apple is an excellent innovator
Parkev Tatevosian: Surprisingly, the Oracle of Omaha has directed that 47.9% of Berkshire Hathaway’s portfolio be invested in Apple (NASDAQ: AAPL) stock. I say surprisingly not because Apple is not worth investment, but because it’s unusual to see even professional investors with such a concentrated portfolio. Nevertheless, I can understand why Warren Buffett likes Apple. It is one of the most innovative businesses worldwide, has a proven track record, and sells at a reasonable valuation.
Apple’s reputation as a trusted brand among consumers helps it retain those customers longer and encourages them to pay a premium for its products and services. That brand loyalty helped Apple grow revenue from $183 billion in 2014 to $383 billion in 2023. When it comes time to upgrade an Apple device, people often stick with the brand, especially because of the ecosystem Apple has built around it. For example, the Apple Watch integrates well with Apple’s iPhone and is improved with services from Apple’s App Store. If you have any of Apple’s products, that ecosystem increases the inconvenience of switching to a rival brand.
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The ability to charge a premium has proven to be profitable…
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