Berkshire Hathaway (NYSE:BRK.A) has filed its final 13f report for 2018 detailing its stock investments and, as usual, people are poring over it like Cold War Kremlinologists … the headlines, however, screamed about Buffett selling out of Apple (NASDAQ:AAPL) stock.
The report showed the portfolio losing $38 billion during the quarter, almost 21% of its value, during the worst bear market since the 2008 financial meltdown. Berkshire stock fell about 6.5% during the period.
But Berkshire only sold about 1% of its Apple stock. AAPL remains the largest holding in the portfolio, and it reportedly wasn’t even Buffett doing the selling. The company’s “basis” in the shares, its average purchase price, is $126. Apple was due to open on February 15 at $170.40 per share.
Buffett Likes Banks
Buffett started as a stock investor, Berkshire as a sort of mutual fund representing his investments.
As Berkshire grew, however, it began buying entire companies, and is now primarily an insurance firm with brands like GEICO and Homestate. Berkshire is also a major electrical utility, one of the largest solar energy investors in the U.S.
To the extent it matters to Berkshire Hathaway shareholders, its stakes in other companies are its “mad money,” an investment pool that’s an alternative to the usual insurance industry practice of buying bonds or index funds. The 13f lists 14 fund managers, one for each insurance company.
Still, journalists tell us, this is Warren Buffett, he must know something.
Buffett knows the value of time. Buffett also knows finance. Buffett knows that banking and insurance are great businesses to be in. Buffett also knows how to take advantage of a huge cash position. This brought the decade’s biggest win, warrants in Bank of America (NYSE:BAC).
The warrants were purchased at the peak of the 2008 crisis. The warrants cost $5, each convertible into a share of common stock which opened for trade Feb. 15 at $28.39. This is nice work if you can get it. You can if you have billions of dollars in cash and don’t lose your nerve. Berkshire now owns about 9.5% of the bank. Bank of America is now Berkshire’s second-largest holding.
The 13f shows Berkshire reducing its stake in Wells Fargo (NYSE:WFC), which has been under pressure over its various scandals and opened at $48.80. But Berkshire’s cost basis in this stock is $24 per share.
The big lesson of Berkshire Hathaway is to buy good companies and let time do your work. Even if they falter, you will still have a profit.
Berkshire Hathaway and Tech Losses
That is also the lesson of Apple.
Buffett has said in the past he doesn’t like tech and doesn’t understand it. Maybe we should take him at his word. Apple is less a computing play than a company built on consumer products and services.
Buffett’s biggest tech mistake now may be Oracle (NASDAQ:ORCL), which Berkshire exited during the quarter at about break-even.
The Bottom Line on Berkshire Hathaway
Apple’s stock price collapse after it reported earnings in October cost Buffett’s portfolio almost $17 billion, the value of its stake plunging from almost $57 billion to about $39.4 billion. It still represented 21.5% of the portfolio at year-end and was its largest holding.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and JPM.