Recent reports that the massive buying of Warren Buffett and his team at Berkshire Hathaway Inc. (NYSE:BRK.B) of Apple Inc. (NASDAQ:AAPL) stock has raised the profile of the iPhone maker to new levels. Berkshire just reported that approximately 43% of the company’s market capitalization is due to its massive stake in Apple, making this stock by far Berkshire’s largest holding in percentage terms in a long time.
The concentration risk this holding provides Berkshire is substantial, though many may argue such a position is prudent given Apple’s performance leadership in recent years. Apple has its own concentration risk in a way, with approximately half of the company’s top line revenue coming from iPhone sales; this means that approximately one-fifth of Berkshire’s results can be attributed to the performance in Apple’s iPhone segment, a truly remarkable fact.
With valuations across the board already stretched, I am concerned about the effect another leg down in financial markets could have on Apple, and therefore Berkshire. The concentration risk shown in Berkshire’s portfolio is also present in many index ETFs given the weighting of these mega-caps in the overall index. Investors ought to be aware of the concentration risk any fund or conglomerate provides before jumping in.
Invest wisely, my friends.