By Nicole Friedman
Warren Buffett has lamented his failure in recent years to find an " elephant-sized acquisition."
But, his Berkshire Hathaway Inc. has amassed a $78.5 billion stake in Apple Inc. since early 2016, based on Berkshire's latest reported holdings as of the end of 2019.
Apple accounted for about 14% of Berkshire's market capitalization as of Thursday, more than any other single stock in its portfolio.
Berkshire spent about $36 billion on its Apple stake, the company said in its 2018 annual report. That exceeds the roughly $32.7 billion Berkshire paid to buy Precision Castparts Corp. in 2016, its biggest acquisition of an entire company.
Apple "certainly is an elephant" for Mr. Buffett, said Thomas Russo, partner at Gardner Russo & Gardner, a longtime holder of Berkshire shares. "It shows he's certainly willing to swing at a big fat pitch when it comes across the plate."
Berkshire's enormous bet on the tech giant underscores how Mr. Buffett's investment approach has changed over the years, especially as market values have climbed and tech companies have become more prominent.
Berkshire's stock has underperformed the S&P 500's total return in the past decade, prompting some investors to question whether the Omaha, Neb., conglomerate has grown too big to beat the market. Even after Berkshire plowed tens of billions of dollars into buying Apple shares, its overall cash pile continued to grow and hit a record $128 billion as of Sept. 30. Some investors have agitated for Berkshire to buy back more stock or pay a dividend.
Berkshire is set to release its 2019 results and Mr. Buffett's annual letter to shareholders on Saturday. Mr. Buffett's widely read letters typically touch on a variety of business and investing topics, in addition to discussing Berkshire's results.
Mr. Buffett, Berkshire's chairman and chief executive, spent his early investing years trying to buy "cigar butts," or companies that were selling so far below their value that an investment would likely be profitable no matter how the company performed. He later transitioned to focusing on buying well-run companies with strong competitive advantages at reasonable prices.
Still, Mr. Buffett largely avoided investing in technology companies for years, saying he didn't understand them.
Mr. Buffett started to study Apple after one of his portfolio managers, either Ted Weschler or Todd Combs, bought about $1 billion in Apple shares for Berkshire in early 2016.
As he studied the company and questioned his great-grandchildren about their allegiance to Apple products, Mr. Buffett decided Apple was a retail company he could understand.
"I didn't go into Apple because it was a tech stock," Mr. Buffett said at Berkshire's 2018 annual meeting. He cited the strength of the company's brand and its capital return strategy. "I don't think that required me to take apart an iPhone or something and figure out what all the components were or anything. I think it's much more the nature of consumer behavior," he said.
Mr. Buffett added to Berkshire's Apple holdings aggressively in 2017 and 2018. Berkshire is Apple's second-largest shareholder and held 5.6% of the company at the end of 2019, according to FactSet.
In an interview with CNBC last year, Apple Chief Executive Tim Cook said he viewed Berkshire's investment as a privilege. "The fact that we've got the ultimate long-term investor in the stock is incredible," he said.
Berkshire's bet has paid off. Apple's shares soared 86% in 2019 and have climbed another 9.1% so far this year.
"What's surprising is how fast it increased," said Doug Kass, president of Seabreeze Partners Management Inc. Given the current size of Berkshire's Apple stake, "it seems to me that it would be prudent for [Mr. Buffett] to be peeling out of some stock," he said.
Mr. Buffett has long preferred to hold a concentrated portfolio of stocks.
In his 1993 letter to shareholders, Mr. Buffett said that uninformed investors should diversify. But "if you are a know-something investor...conventional diversification makes no sense for you," he said. "I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices."
Berkshire sold a small percentage of its Apple holdings between mid-2018 and the end of 2019, according to securities filings. Those sales were made by either Mr. Weschler or Mr. Combs, who manage a fixed amount of money for Berkshire, according to a person familiar with the investments.
Some of Berkshire's other large investments have stumbled. Berkshire owns 27% of Kraft Heinz Co., which fell 25% last year and has slid another 15% this year. Mr. Buffett said last year that Berkshire and 3G Capital overpaid in 2015 when they helped form Kraft Heinz.
Berkshire's Class A shares rose 11% in 2019. They closed Thursday at $342,122, up 0.7% year to date.
Write to Nicole Friedman at email@example.com