4 Timeless Lessons From Warren Buffett’s Favorite Stock


It’s no secret by now that Apple (AAPL -1.03%) is Warren Buffett’s favorite stock.

The Berkshire Hathaway (BRK.A -0.35%) (BRK.B -0.17%) chief has sung its praises time and again, calling it a “wonderful business” and even saying it’s “probably the best business I know in the world.”

Despite the company’s size and Buffett’s fondness for the iPhone maker, it may still come as a surprise to learn Apple now makes up 51% of Berkshire Hathaway’s stock portfolio as of the end of the second quarter.

Berkshire first began buying the stock in 2016, and since then, it’s delivered monster returns, up more than 500%. If you want to invest like Buffett, keep reading to see four easy ways you can follow his example with Apple.

Warren Buffett at a conference.

Image source: The Motley Fool.

1. Let your winners run

Buffett prefers to be a buy-and-hold investor when the circumstances support it, saying that his favorite holding period is forever when the business and management are outstanding.

Letting your winners run, as opposed to selling them to book gains, is a crucial tactic for any investor aiming to outperform the market. The best stocks can deliver returns of 10 times, 20 times, 50 times, or even more on your original investment, but you only benefit from those gains if you hold the stock. 

By doing so, you benefit from the magic of compounding, and one big winner can truly make a difference to your overall wealth, as well as offsetting dozens of losers.

Buffett has benefited from this strategy with stocks like Coca-Cola and American Express, which Berkshire has held for more than 30 years, generating over 1,500% returns without dividends reinvested.

2. Diversification is overrated

If your financial advisor saw you had more than half of your portfolio invested in one stock, their hair might catch on fire.

Most individual investors are counseled to avoid being overly concentrated in one stock and to diversify across multiple sectors and even asset classes. Index funds and mutual funds make it easy for investors to diversify, and there’s some logic to the practice.

Diversifying is a way of limiting downside risk, and for many investors, especially in a retirement account, the first rule is not to lose money. When you have 51% of your holdings in one stock, it only takes one thing to go wrong with that company, and your portfolio could get crushed.

However, the flip side of diversification is that you limit your upside gains when you sell your winners instead of letting them run. Rebalancing your portfolio by selling winners to reduce concentration is common, but it can be counterproductive to achieving truly outstanding returns.

Diversification can work, but it requires careful consideration rather than blindly selling otherwise winning stocks.

3. Sometimes, winners are hiding in plain sight

Newer investors often believe they have to find an under-the-radar small-cap stock in order to make big money on the stock market.

However, the opposite seems to be true most of the time.

There are few stocks that seem more obvious than Apple, after all. Its business and brand strength are easy to understand, and it’s been the most profitable smartphone company ever.

In fact, many of the other top performers of the 21st century have been stocks whose competitive advantages were readily apparent. Those include AmazonNetflixAlphabet, and Tesla.

The lesson here is that you don’t need to overthink investing, and there are no bonus points for originality. Just because a stock seems obvious doesn’t mean it won’t be a big winner, especially if it still has a long growth runway ahead of it.

4. You can get in late and still earn big returns

Finally, a key lesson from Buffett’s success with Apple is that you can get into a stock late and still be a big winner.

By 2016, Apple’s dominant consumer tech ecosystem was clear with several leading devices and a growing, high-margin business in services, including its App Store and Apple Pay.

It would have been easy to think the stock had already run its course, but it’s jumped by more than six times since then. The company has continued to raise prices on the iPhone, seen strong growth from new products like Airpods, and expanded its services business.

Don’t assume that a large, dominant company is always done growing. If it can continue to increase profits and the valuation is reasonable, the stock should have room to go higher.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon.com and Netflix. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Berkshire Hathaway, and Netflix. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.


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