Warren Buffett is a legendary investor who has graced investment markets for decades. Like most, I’m a big fan and copy a lot of his advice when it comes to my personal stock picks. However, I don’t just blindly follow whatever he says. I always try and measure it up against what I believe as well. In doing so, there’s one idea that I currently disagree with him on!
Heavy exposure to just one stock
Via his investment company Berkshire Hathaway, Buffett has 894m shares in Apple, according to Q2 filings. This has an approximate value of $122bn, by far the largest holding in the $300bn portfolio. In fact, it accounts for 40.76% of the invested funds. Naturally, fluctuations in the share prices of all the stocks means that this value does change all the time. But the point here is that he has a very large and concentrated position in just one stock.
The problem I have with this is that it exposes him to the fate of just one company. Even though Buffett holds many other stocks, it doesn’t mean that the portfolio is diversified enough, I feel. For example, I could own 100 stocks, but if 99 accounted for 60% of my total fund and 1 accounted for 40%, I’d wouldn’t be fully diversified.
The danger (in my opinion) is that if Apple underperforms, the performance of the rest of the portfolio won’t be able to act as a buffer.
Instead, I try to make sure that all of my holdings are broadly similar in terms of value. Sure, if I really like a share then I might invest more than normal. But I don’t have one company that accounts for such a large part of my overall pot.
Why I could be wrong
I could be wrong, of course! The Apple share price is only down 4.5% over the past year. This is actually a good performance, particularly when the broader tech sector is down much more. However, when I look at just the 2022 year-to-date performance, the stock is down 22%.
Warren Buffett is known to be a large ‘value stock’ buyer. He aims to purchase stocks when they’re beaten down, when he believes the share price is lower than the long-term fair value. That’s why I think he’s bought so much Apple stock. It’s clear that he has a strong conviction here, given the amount of money he’s spent.
If the tech sector rebounds next year, with Apple leading the charge, the gains for his portfolio could be huge.
Ultimately, we’ll have to wait and see how this play turns out for the great investor. Yet as much as I respect him, I’d prefer to hold a much smaller stake in Apple and allocate the rest towards other undervalued options to spread my risk.