Apple became the first trillion-dollar company in 2018. Taiwan Semiconductor Manufacturing is the newest member of this exclusive club, but Berkshire Hathaway -- which crossed the $1 trillion threshold in August -- is the newest American-based member.
Berkshire is an investment company that Warren Buffett has run since 1965. He and his team manage a portfolio of publicly traded stocks worth $317 billion, in addition to a $277 billion cash pile and numerous private, wholly owned subsidiaries.
Since 2018, Buffett has authorized the repurchase of $77.8 billion worth of Berkshire stock. That's twice as much as the conglomerate has invested in any single company in its entire history.
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Buffett's investing strategy is simple
Buffett is a value investor, so he likes to buy great companies at an attractive price with the intention of holding on to them for the long term. Steady growth, robust profitability, and reliable management teams are just a few of the attributes he looks for when deciding to invest. He also favors companies with dividend payments and stock buyback plans, which help compound his returns over time.
Berkshire's holding in Coca-Cola(NYSE: KO) is a great example of Buffett's strategy in action. Berkshire spent $1.3 billion buying shares in the beverage giant between 1988 and 1994, and it has never sold a single one. That position is now worth a staggering $27.7 billion. Plus, Berkshire is on track to earn $776 million in dividends from its Coca-Cola stake in 2024 alone.
But that's just one of Berkshire's many success stories. Its other long-term investments include American Express, Moody's Corp, and Apple.
Apple is the largest holding in Berkshire's portfolio today. It spent approximately $38 billion acquiring shares in the iPhone maker between 2016 and 2023. Despite Berkshire selling a significant chunk of its stake this year (which I'll discuss further in a moment), the position is still worth $94.5 billion as of this writing. That accounts for 29.8% of Berkshire's $317 billion portfolio of publicly traded stocks.
Berkshire stock has delivered incredible returns for investors
Berkshire Hathaway was originally a textiles company, and it was on the brink of failure before Buffett stepped in to buy it in 1965. He was unable to save its legacy business, so he converted it into a holding company for his various investments.
Over Buffett's 59-year tenure, Berkshire stock has delivered a compound annual return of 19.8%, which could have turned an investment of $1,000 into over $42 million. In comparison, a $1,000 investment in the S&P 500(SNPINDEX: ^GSPC) index over the same period would be worth just $308,115 today.
Berkshire has delivered the operating results to support the incredible gains in its stock. The conglomerate generated $49 million in revenue during 1965, and that number is on track to come in at $368 billion in 2024. Today, Berkshire generates revenue from insurance premiums, its interests in energy and utilities businesses, and sales and services from its various consumer subsidiaries like Dairy Queen and Duracell.
Berkshire has spent $77.8 billion on stock buybacks since 2018
Stock buybacks are Buffett's preferred way to return money to shareholders. Every time Berkshire buys its own shares on the open market, it reduces the company's available float, which organically boosts its stock price.
Buffett has authorized a whopping $77.8 billion worth of repurchases since 2018, which is twice as much as Berkshire spent building its stake in Apple. Berkshire has become so large that it's struggling to find new investments that can really move the needle, so rewarding loyal shareholders is a good alternative to sitting on piles of idle cash.
Plus, considering Berkshire's performance relative to the S&P 500, few people will argue that buybacks are a bad use of the conglomerate's money.
Berkshire can continue buying its own stock at management's discretion for as long as its cash, equivalents, and holdings in U.S. Treasury bills remain above $30 billion. Since the company is sitting on an eye-popping $277 billion in liquidity right now, buybacks probably won't stop in the foreseeable future.
Buffett's latest moves could spell trouble for the stock market
As I mentioned earlier, Berkshire sold more than half of its stake in Apple during the first half of 2024. Based on Apple's average stock price during the first and second quarter, that translated to around $100 billion worth of sales.
But that's not all. The conglomerate also trimmed its positions in Capital One Financial, Chevron, and T-Mobile (to name a few), while selling its entire stakes in Snowflake, Paramount Global, and HP Inc.
Plus, Buffett only authorized $345 million worth of buybacks during Q2, which is the least money Berkshire has spent acquiring its own shares since 2018.
What does all that mean? It's possible Buffett thinks the stock market is expensive, so he's cashing in some of Berkshire's gains to prepare the company for a potential correction. If a correction happens, Buffett can swoop in and put the conglomerate's cash pile to work.
That strategy makes sense, because the S&P 500 currently trades at a price-to-earnings (P/E) ratio of 27.8. That's a whopping 53% more expensive than its long-term average of 18.1 going back to the 1950s.
But don't rush to sell your stocks
A high valuation alone isn't a sign of an imminent correction, because the S&P 500 can remain expensive for years. Buffett himself would tell you he has no idea where the market is going in the short term, but he's a professional who is required to make decisions that he feels will benefit Berkshire's shareholders. Occasionally, that means selling large quantities of stock.
Everyday investors shouldn't take his recent moves as a signal to sell their own stocks. Instead, history suggests the best move is to consistently buy stocks over time, and hold on to them for as long as possible to benefit from the magic of compounding.
After all, you don't see Buffett selling his cash-generating powerhouses like Coca-Cola right now.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Chevron, HP, Meta Platforms, Microsoft, Moody's, Nvidia, Snowflake, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends T-Mobile US and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
