Finance History | 1 Infinite Loop, Cupertino, 31 December 2016 — US$6.747 Billion Entered Berkshire's Equity Ledger

On 31 December 2016, Berkshire Hathaway's annual report listed 61,242,652 Apple shares with a cost of US$6.747 billion in 2016 dollars and a market value of US$7.093 billion in 2016 dollars. The year-end position represented about 1.1 percent of Apple. It introduced a large consumer-technology company into a portfolio long associated with insurers, banks and familiar branded goods. The analytical bridge was the customer relationship. Devices, operating systems, services and an installed user base could produce repeat purchases and high switching costs, making the economics resemble a consumer franchise even though the products required rapid technical change. That distinction did not remove technology risk. Product relevance, supply chains, regulation and competition could alter Apple's earning power faster than the demand for beverages or insurance, so the stake depended on judgment about customer loyalty and management's capital allocation. Berkshire's purchase also gave it a claim on earnings Apple retained rather than distributed. Accounting rules recorded only dividends in Berkshire's operating earnings, while Apple's undistributed profit remained economically attributable to all shareholders. Share repurchases strengthened that mechanism when completed below intrinsic value. By the end of 2021, Berkshire's ownership had risen from 5.39 percent to 5.55 percent during 2021 without Berkshire spending additional money for that increase. Apple paid Berkshire US$785 million of dividends in 2021 dollars, while Berkshire's proportional share of Apple's 2021 earnings was approximately US$5.6 billion in 2021 dollars. The gap shows why dividend income alone understates the economics of a durable minority holding. Repurchases can also destroy value when executed at excessive prices, and a rising ownership percentage does not guarantee higher intrinsic value. Their benefit depends on the price paid, the shares retired and the operating business that remains. The entrance at 1 Infinite Loop was Apple's principal executive address during 2016. Its campus marks Berkshire's expansion of the franchise idea from physical consumer products to an integrated device and services ecosystem with substantial retained earnings. Photo: Joe Ravi, CC BY-SA 3.0, via Wikimedia Commons.