Apple

So how much you figure in for that - I would say that the retained earnings beyond dividends of our 770 billion of equities - in other words, how much they’re keeping from us, but that our share of the earnings, which can be used by them, whether it’s Apple or American Express or Coca-Cola or Wells Fargo or whatever, our share, you know, is in many billions of dollars annually. And one way or another, we think that those dollars will benefit us as much as if they had been paid out. Now, in certain cases, they won’t. But in certain cases, they’ll excel the amount, in terms of market value created. So there’s many billions of dollars we are not showing in our earnings that is being retained by our investees. And one way or another, I think we’ll get value received out of those. So you can take 20 or 21 billion under present tax rates, present economic conditions, and then we should get something from that and we should get more when we get 100 billion of cash invested. And we should get more as we retain the earnings. So we hope it adds up to a bigger number as we go along. Charlie? CHARLIE MUNGER: And you also like the Apple and airline stocks you’ve recently purchased better than the cash you parted with.

Our second and third most valuable assets — it’s pretty much a toss-up at this point — are Berkshire’s 100% ownership of BNSF, America’s largest railroad measured by freight volume, and our 5.4% ownership of Apple. And in the fourth spot is our 91% ownership of Berkshire Hathaway Energy (“BHE”). What we have here is a very unusual utility business, whose annual earnings have grown from $122 million to $3.4 billion during our 21 years of ownership. Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple.

Apple — our runner-up Giant as measured by its yearend market value — is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier. That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100 million . We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job. It’s important to understand that only dividends from Apple are counted in the GAAP earnings Berkshire reports — and last year, Apple paid us $785 million of those. Yet our “share” of Apple’s earnings amounted to a staggering $5.6 billion. Much of what the company retained was used to repurchase Apple shares, an act we applaud. Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well.

A very minor gain in per-share intrinsic value took place in 2022 through Berkshire share repurchases as well as similar moves at Apple and American Express, both significant investees of ours. At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company’s outstanding shares. At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us.

Now, imagine — imagine if you owned a farm, and you had 640 acres, and you farmed it every year, and you made a little money on it, and you enjoyed farming. And somehow, 20 or so years later, it had turned into 11-hundred or 12-hunred acres. I mean, you’d say, you know, how long has this been going on? You know, what could possibly be? — you know, is this un-American? — or whatever it may be. I mean, is it, you know, sensible use of the (unintelligible) cost of capital? Blah, blah, blah, blah, blah. If you do it at the right price, there’s nothing better than buying in your own business. We owned — I mentioned and used Apple as an example of how our interest in Apple, you know — every time a company that earns a hundred billion a year — you know — it means that our interest in it goes up a tenth of a percent. You know, we’ve added another a hundred million to earnings. Well, I mean, it takes a lot of work (laughs) — a hundred million in earnings. And, you know, in the first quarter they just reported — they’re on a fiscal year — but they just reported their March quarter — and, you know, they earned more money and they had fewer shares outstanding. And we actually bought a little more Apple, in the first quarter or so. We decided we wanted to own a greater interest. And on top of that, we knew that we would own an even greater interest if they kept buying in their shares, which — we didn’t have any insider information or anything — but certainly, it would seem the way to bet. And, you know, we feel better because we bought the shares we bought in the market. And we feel (laughs) just as good as the fact — by the fact — they used their cash to buy out some of the other people. It is the simplest thing in the world, and then I read all this stuff.

Last year I mentioned two of Berkshire’s long-duration partial-ownership positions — Coca-Cola and American Express. These are not huge commitments like our Apple position. Each only accounts for 4-5% of Berkshire’s GAAP net worth. But they are meaningful assets and also illustrate our thought processes.

I mean, we’re learning all the time how consumers behave. I’m not going to be able to learn the technical aspects of businesses. It’d be nice if I knew it, but it isn’t essential. And, you know, obviously we’ve got a business at Apple, which is larger than our energy business. BECKY QUICK: This next question comes from Ellie Amin Tebet (PH), who asks, “During an episode of Investing the Templeton Way podcast, Professor Damodaran, who he respects almost as much as Warren and Charlie, mentioned that he is not comfortable with positions becoming a large part of his portfolio. For example, when they reach 25-35%. He mentioned that Apple is now 35% of Berkshire’s portfolio and thinks that that is near a danger zone.” Wonders if Warren and Charlie can comment.

In the other hand, we own a small percentage of a dozen or so very large and highly profitable businesses with household names such as Apple, American Express, Coca-Cola and Moody’s. Many of these companies earn very high returns on the net tangible equity required for their operations. At yearend, our partial-ownership holdings were valued at $272 billion. Understandably, really outstanding businesses are very seldom offered in their entirety, but small fractions of these gems can be purchased Monday through Friday on Wall Street and, very occasionally, they sell at bargain prices.

Let’s start, just given what you mentioned there was some news that came out in the 10-Q this morning. It shows that Berkshire sold another 115 million shares of Apple in this last quarter. That’s Berkshire’s largest holding. I noticed that you have excluded Apple from this group of businesses. Have you or your investment managers’ views of the economics of Apple’s business or its attractiveness as an investment changed since Berkshire first invested in 2016?”