US stock exchanges are home to eight companies with a valuation of at least $1 trillion as of October 21:
Apple became the first company to reach a trillion dollars in 2018. Taiwan Semiconductor Manufacturing is the newest member of this exclusive club, but Berkshire Hathaway – which crossed the $1 trillion threshold in August – is the newest American-based member.
Berkshire is an investment company that Warren Buffett has led since 1965. He and his team manage a $317 billion portfolio of publicly traded stocks, along with a $277 billion pile of cash and numerous privately held, wholly owned subsidiaries.
Since 2018, Buffett has authorized $77.8 billion worth of Berkshire stock buybacks. That’s twice as much as the conglomerate has invested in any company in its entire history.
Buffett is a value investor, so he likes to buy great companies at an attractive price, with the intention of holding them for the long term. Steady growth, robust profitability and reliable management teams are just some of the attributes he looks for when deciding to invest. He also prefers companies with dividend payments and stock buyback plans, which help boost his returns over time.
But that’s just one of Berkshire’s many success stories. The other long-term investments include American Express, Moody’s Corpand Apple.
Apple is currently the largest holding in Berkshire’s portfolio. It spent about $38 billion acquiring shares in the iPhone maker between 2016 and 2023. Despite Berkshire selling a significant portion of its stake this year (which I’ll discuss further in a moment), the position is still worth $94.5 billion at the time of writing. . That accounts for 29.8% of Berkshire’s $317 billion portfolio of publicly traded stocks.
Berkshire Hathaway was originally a textile company and was on the brink of failure before Buffett stepped in to buy it in 1965. He was unable to save the old business, so he turned it into a holding company for his various investments.
During Buffett’s 59-year tenure, Berkshire stock has delivered a compound annual return of 19.8%, which could have turned a $1,000 investment into more than $42 million. For comparison, a $1,000 investment in the S&P500 (SNPINDEX: ^GSPC) index over the same period would be worth only $308,115 today.
Berkshire has delivered the business results that support the incredible gains in its shares. The conglomerate generated $49 million in revenue in 1965, and that number is on track to reach $368 billion by 2024. Today, Berkshire generates revenue from insurance premiums, its interests in energy and utility companies, and the sales and services of its various consumer businesses. subsidiaries such as Dairy Queen and Duracell.
Stock buybacks are Buffett’s favorite way to return money to shareholders. Every time Berkshire buys its own stock on the open market, it reduces the company’s available float, which organically increases the stock price.
Buffett has approved a whopping $77.8 billion in buybacks since 2018, which is twice as much as Berkshire has spent building its stake in Apple. Berkshire has grown so big that it is struggling to find new investments that can really make a difference. So rewarding loyal shareholders is a good alternative to sitting on piles of unused money.
Furthermore, given Berkshire’s performance versus the S&P 500, few would argue that buybacks are a poor use of the conglomerate’s money.
Berkshire may, at management’s discretion, continue to buy its own stock as long as its cash, equivalents and holdings in U.S. Treasury securities remain above $30 billion. Since the company currently has a staggering $277 billion in liquidity, the buybacks are unlikely to stop in the near future.
As I mentioned earlier, Berkshire sold more than half of its stake in Apple in the first half of 2024. Based on Apple’s average stock price during the first and second quarters, that translated into revenues worth about $100 billion.
But that’s not all. The conglomerate has also reduced its holdings Capital one financial, ChevronAnd T-Mobile (to name a few), while selling his entire shares in it Snowflake, Big globalAnd HP Inc.
Furthermore, Buffett only authorized $345 million in buybacks in the second quarter, which is the least money Berkshire has spent on stock acquisitions since 2018.
What does that all mean? It’s possible that Buffett thinks the stock market is expensive, so he’s cashing in on some of Berkshire’s profits to prepare the company for a possible correction. If a correction occurs, Buffett can step in and put the conglomerate’s cash pile to work.
That strategy makes sense because the S&P 500 is currently trading at a price-to-earnings (P/E) ratio of 27.8. That is no less than 53% more expensive than the long-term average of 18.1 from the 1950s.
A high valuation alone is not a sign of an impending correction, as the S&P 500 could remain expensive for year. Buffett himself would tell you that he has no idea where the market is going in the short term, but he is a professional who has to make decisions that he thinks will benefit Berkshire shareholders. Sometimes that means selling large amounts of inventory.
Everyday investors shouldn’t take his recent moves as a signal to sell their own shares. Instead, history suggests that the best move is to buy shares consistently over time and hold them for as long as possible to benefit from the magic of compounding.
After all, you don’t see Buffett selling his money-generating powerhouses like Coca-Cola right now.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director 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. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Chevron, HP, Meta Platforms, Microsoft, Moody’s, Nvidia, Snowflake, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends T-Mobile US and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Meet America’s newest $1 trillion company. Warren Buffett has spent $77.8 billion buying his stocks since 2018, originally published by The Motley Fool
