Case Study: Berkshire's big bet on Apple in 2016
Understanding an all-time great investment.
The Case Study Series will examine successful investment decisions made by great investors. It is said that “history doesn’t repeat itself, but it often rhymes.” Case studies help us develop new mental models and recognize analogous situations in the market today. We can adopt successful principles and apply them to our future decisions.
“I’m somewhat embarrassed to say that Tim Cook has made Berkshire a lot more money than I’ve ever made Berkshire Hathaway.”
During Berkshire’s 2025 annual shareholder meeting, Warren Buffett attributed much of Berkshire’s performance to the compounding ability of Apple ($AAPL). He went as far as thanking the CEO personally.
The Apple bet is notable not only for it’s fantastic returns, but by the shear scale of the capital deployed ($35 billion over the years). Berkshire’s investable universe is severely limited to large cap companies that can really “move the needle.” It is rare for large cap giants, covered by armies of analysts, to be severely mispriced. Seizing a large position in Apple during a period of temporary turbulence was a masterstroke. It is instructive to understand Berkshire’s reasoning at the time and what the situation looked like to most investors.
The backdrop:
While it does not seem that way now, in 2016 the Apple position was a deeply contrarian bet. Many market commentators proclaimed that Apple “lost its edge” and was well passed their prime. This was basically consensus opinion at the time, every analyst and news article was playing the same song. Here are a few headlines:
There were plenty of good reasons for Apple’s stock to fall at the time. Overall, they appeared to become a lethargic and oversized stalwart, likened to IBM. They lost their image as a fast growing innovator that had found its second wind in consumer electronics (it is easy to forget that Apple was founded back in 1976).
This was not a founder-led business anymore. During the Steve Jobs period, they had come up with sleek minimalist designs and a series of products that delighted consumers (iPod, iTouch and iPhone). By 2016 this momentum had stagnated, reflected in somewhat repetitive iterations of their products. Apple began to branch off into the car industry with Project Titan, which ran unsuccessfully from 2014-2024. This would be an example of Peter Lynch’s term “diworsification.”
There were also a few short-term causes for concern:
Apple reported its first year-over-year sales decline since 2003.
First-ever drop in iPhone unit sales. Deemed to be over-reliant on the iPhone.
Spent more money on its new campus than on research and development.
Chinese regulators shut down Apple’s online book/video services.
In 2016, the company’s PE ratio dropped under 13 to complete the set-up. The earnings yield was 8-9% throughout the year.
Taking out the big guns:
Berkshire began with a $1 billion investment in Apple in the first quarter of 2016, increasing their position continuously over the course of the year. While market commentators were focused on short-term headwinds, Berkshire was focused on the underlying quality of Apple’s business. They saw through the noise and perceived the true essence of the business. The secret sauce.
In a press release from October 2016 by Manager Magazin (a German business magazine), Ted Weschler explained the rationale behind Berkshire Hathaway’s Apple investment:
Apple has elements of a subscription model that protects it from competition and could keep margins elevated for the long term, according to major investor Berkshire Hathaway. That is a large difference to former smartphone competitors Nokia, Blackberry and Motorola…
Weschler says that the smartphone business had been transformed by the app economy and cloud computing. “As network speed has gotten faster and faster, and with it the information that people can absorb on the network, things like photo applications, and apps, they create a stickier ecosystem”. “Once you are fully invested in the App ecosystem and you have got your thousands of photographs up in the cloud and you are used to the keystrokes and functionality and where everything is, you become a sticky consumer.”
They recognized the importance of a sticky ecosystem in retaining consumers over time. There was a powerful interplay between the Mac operating system, downloading from the iStore, listening to iTunes, storage on iCloud, communication on iMessenger/FaceTime and all the other products starting with “i”. Even their chargers were only compatible with Apple devices at the time. This ecosystem offered convenience for its users while secretly increasing switching costs. Consumers would have to expend mental effort in order to learn a new system that was less integrated.
Berkshire was not a group of technology experts, but they were experts on consumer behavior. While innovation was important, Apple did not need to produce the most advanced technology to be successful. Their higher profit margins were due to their brand image and the stickiness of their ecosystem. Buffett recognized that Apple users would rather “give up a second car” than give up their iPhone. Delighted customers translated into incredible brand loyalty and massive returns on capital.
Even during the 2016-2017 trough, their ROIC hardly ever went below 20% before re-accelerating back into the 40% range. Maintaining a high ROIC over long periods of time is an indicator of a true competitive advantage.
The Results:
They added to their position continuously over the years and their total $35 billion investment was worth $173 billion in 2023.
The total Apple position ballooned to almost half of Berkshire’s portfolio before they began selling it. This coincided with Apple’s high valuation relative to its recent growth, with a PE ratio in the 30s-40s from 2023-2025. This contrasts starkly with the set-up in 2016. Buffet has decided to sell a substantial stake and build his cash pile. It is notable that he did not exit the position completely, Apple is still a quality business. But Buffet has reduced his portfolio’s dependence on one company at a time when prudence may be rewarded.
4 Key Lessons:
Buying Apple in 2016 was a classic purchase of a “great” business at a below-average valuation. The genius of this investment was recognizing that the underlying driver of Apple’s success was unchanged.
Focus on a company’s essence. What are the characteristics that make them successful over the long-term? Are the consumers happy with the product? Ignore temporary headwinds which may cloud your judgement.
A product ecosystem is a powerful moat.
Berkshire dared to be contrarian at a time when the the stock was out of favor. They ignored the market sentiment.
Valuation matters: Berkshire patiently waited for Apple to become undervalued. They also held onto a large cash pile so that they would be ready when an opportunity presented itself. "When it rains gold, reach for a bucket, not a thimble."
- Stock Doctor
Tim Cook might have made Berkshire more money than Buffet, but it takes the mind of Buffet to invest and stay invested throughout. I like this concept of case studies, hope you continue bringing examples like this.