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“If you know the edge of your own ability pretty well, you should ignore most of the notions of our experts about what I call ‘deworsification’ of portfolios.” – Charlie Munger
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While the S&P 500 was still down for the week, last Friday’s rally did a lot to boost sentiment as it turned a hole of over 2.5% to a weekly decline of less than 1%. For its part, the Nasdaq actually managed to finish the week marginally higher. This morning, the week is starting off on a relatively quiet but positive note as the economic calendar is light, and the pace of earnings slow. Thankfully, there wasn’t even any stress in the banking sector to have to contend with! Looking ahead, though, earnings activity will pick up after the close, and even though the mega-caps are behind us, we’re still in the peak reporting period, so the number of reports won’t slow down. Then, on Wednesday, the April CPI will likely be the major report of the week, and that will likely dictate how we finish the week.
Over the weekend at the annual Berkshire Hathaway shareholders meeting, Warren Buffett referred to Apple (AAPL) as a better business ‘than any we own’. Apple has worked out better than See’s Peanut Brittle for Berkshire shareholders. The chart below shows the quarterly performance of Berkshire Hathaway (BRK/b) over the last 20 years. From 2003 through the end of 2015, before Berkshire started acquiring Apple, the stock’s average quarterly return was a gain of 2.3%. Since 2016, when Buffett first took a bite out of Apple, Berkshire’s average quarterly gain has been more than a full percentage point higher at 3.4%.
Now, to say that the higher average quarterly return is due entirely to Apple would be too simplistic. After all, S&P 500 returns are higher in the post-2016 period (+2.8%) compared to the period from 2003 through the end of 2015 (+2.3%) but given AAPL’s outperformance of the overall market since the start of 2016 (144%) it certainly hasn’t hurt Berkshire, and the stock would almost certainly be lower now had Buffett not placed the bet on Tim Cook.
Not surprisingly, as Apple has become a much larger part of Berkshire, the stock has tended to trade more in line with Apple as well. The chart below shows the rolling 200-day correlation between the daily percentage changes of Apple and Berkshire over the last 20 years. From 2003 through the end of 2015, the average rolling correlation between the two was +0.256. Since Berkshire started acquiring Apple, even though the correlation immediately dipped in early 2016, the overall average correlation has been considerably higher at +0.453.
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