Warren Buffett is one of the world’s most famous investors. He often uses a strategy called value investing, which involves buying shares when the market presents a discount from a company’s estimated true worth.
Interestingly, Buffett’s largest investment holding through his company, Berkshire Hathaway, is Apple (NASDAQ:AAPL). This accounts for 50% of the total portfolio. I’m wondering, is it wise for me to buy it too?
A balanced approach to diversification
When I first began investing, diversification was arguably the most important strategy for me to adopt. It allowed me to not have all my eggs in one basket. In turn, that protected me from any big losses in my portfolio from one or two highly concentrated investments.
While I’m still diversified today, I’m much less so than when I first began. Today, I hold around 10 companies in my portfolio. The reason for this, and why Buffett also adopts a similar strategy of concentration, is that it allows for more money to go to the investments that are likely to perform the best.
In the case of Apple, I’m not a current shareholder, but I can see why it’s attractive to Buffett. Apple has delivered 10-year share price growth of approximately 735%. That translates to a compound annual growth rate of around 24%, which is much higher than the 10.5% delivered by the most popular American market index, the S&P 500.
iPhone and AI
One of the concerns that many investment professionals have voiced about Apple recently is that its markets are very saturated.
In 2023, the iPhone accounted for approximately 52% of its total revenue. That’s a great achievement, but the problem with this is that a lot of potential customers already own one. In addition, upgrades are becoming less necessary due to the already high performance of the last few models.
However, there’s potentially more room for Apple to dominate. In 2023, it had an approximately 20% global smartphone market share. If it can further outcompete some of the other companies in the field, there’s some likelihood of this growing.
However, I think one area where the organisation could be lagging is in AI. While management has reportedly finalised a deal with OpenAI to bring ChatGPT features to iOS 18, I think Apple would have been much stronger if it had developed its own competitive, high-end generative AI model like Alphabet, Meta, and other big tech companies.
Should I put half my portfolio in Apple?
In my opinion, Apple is a very strong company, but there are likely better investments with more growth potential for me to consider. Such a heavy reliance on the iPhone and no market-leading in-house AI model makes me cautious about investing in it.
That being said, Buffett clearly knows what he’s doing. I think it’s quite unrealistic to suggest that Apple will underperform the S&P 500 any time soon. Instead, it might just be slower growth for shareholders than it was over the past decade.
If I want security, Apple could make a good choice. It’s the second-largest company by market cap, with a $3trn valuation. But if I want big growth, I’d better look for newer businesses. Even though I admire it, Apple’s not going on my watchlist for now.
