At current price of $156.33 the Apple stake is worth $139.88B. Berkshire market cap is $618.77B. That makes the percent of Apple embedded in Berkshire 22.6%.
The current price of BRK.B is $280.85. So, each share of BRK.B has $63.47 worth of AAPL.
I’ve been looking to add more AAPL and BRK.B to my portfolio, but may just add the BRK.B.
The downside of using Berkshire shares as an Apple proxy is having no control over the position. There’s little reason to think they’ll sell it though. Buffett talks of Apple as one of his four crown jewels.
I guess the other downside is not getting the dividends.
“I’ve been looking to add more AAPL and BRK.B to my portfolio, but may just add the BRK.B.”
Such insightful words from WEB in the report:
“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.“
The current price of BRK.B is $280.85. So, each share of BRK.B has $63.47 worth of AAPL.
A little less, actually, since along with that $63.47 worth of Apple, there’s a quite hefty capital gains tax to pay, eventually. At year end, Berkshire’s 10-K says their 907,559,761 share Apple position (a little bigger than your figure) had a cost basis of $31.089b, so that would be $34.26 per share. At the current price of $155.96, that would mean that there is a future capital gains tax liability on that $121.70 per share unrealized capital gain. If that is eventually taxed at 21% (or sooner, if a certain political party gets its way), that means there is a float-like liability of about $25.56 per share. Multiplying by 907m Apple shares, that is $23.2b, or about $10.55 per Berkshire B share equivalent. (I may have some rounding errors here, but you get the idea.) So it might be more accurate to say that each B-share equivalent of Berkshire has about $55 worth of Apple. Still a lot, but now only 55/281.04= 20%…
…
I guess the other downside is not getting the dividends.
You get them indirectly thru Berkshire, although you pay a little extra (triple) taxation (the company pays taxes on its income, then Berkshire pays taxes on the dividends coming from that income, and then we will eventually pay taxes when we sell our Berkshire shares.) But at least those Apple dividends get put to use by Buffett instead of by you. If you’re like me, there’s a good chance that that is a plus, not a minus!
It’s worth thinking about the intended meaning “23% of Berkshire”.
23% of Berkshire’s what?
It’s 23% of Berkshire’s risk, in that if the market cap of Apple went to zero then that’s the size of the hit you might expect to Berkshire’s market cap in a rational market.
But the Apple position is not 23% of the intrinsic value of a share of Berkshire, nor is it 23% of Berkshire’s assets.
Different meanings require calculating somewhat different numbers.
FWIW, at June 30 the market cap of Berkshire’s Apple position was 13.4% of Berkshire’s total assets.
“I wonder if BRK can distribute the Apple shares to shareholders for tax free.”
Maybe, but it doesn’t matter because it won’t happen. Berkshire’s investments are almost exclusively held inside the insurance companies. They aren’t going to spin out $200+ billion of insurance capital to save tax on shares they would otherwise sell on valuation or other grounds.
I guess the other downside is not getting the dividends.
Think of it as getting the dividends but not paying the taxes on it. – Goofyhoofy
That’s probably the best and most succinct explanation of it I’ve yet seen. Thanks! Even I can remember that!
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.” Charlie Munger
