Warren Buffett’s Apple bet could disappoint over the next decade, new study suggests

Warren Buffett. Bill Pugliano/Stringer/Getty Images

  • Warren Buffett’s Apple bet might not impress over the next decade, new research suggests.
  • Dimensional Fund Advisors tracked the largest 10 US stocks at the start of each decade since 1930, and found that on average, they underperformed the market by 1.1% over the next five years and 1.5% over 10 years.
  • Buffett’s Berkshire Hathaway counts Apple, the most valuable US stock with a $US2 trillion market capitalisation, as the biggest holding in its equity portfolio.
  • The investor’s company has more than tripled its money on Apple in less than five years, but might not gain significantly more for a long time.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett’s Apple shares could disappoint in the coming years, according to new research showing the most valuable stocks typically underperform after reaching the top of the market.

Dimensional Fund Advisors analysed the largest 10 US stocks at the start of each decade since 1930. The asset manager found that on average, they outperformed the market by just 0.7% on an annualized basis over the next three years. Moreover, they underperformed by 1.1% over five years and 1.5% over 10 years.

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“Our research shows that top stocks have historically had much lower returns after joining the top 10, compared to the period of their ascent,” Wes Crill, Dimensional’s vice president, said in an email to Business Insider.

“From 1927 to 2019, the average annualized return for these stocks over the three years prior to joining the Top 10 was nearly 25% higher than the market,” he continued. “In the three years after, the edge was less than 1%.”

The most valuable US stocks today include Apple, Microsoft, and other “big tech” companies. Crill highlighted the fact that Apple and the other “FAANG” stocks — Facebook, Amazon, Netflix, and Google-owner Alphabet — returned over 30% per year on an annualized basis from September 2010 through August 2020.

Dimensional’s findings suggest they will perform far worse over the next decade — a worrying trend for investors like Buffett, whose Berkshire Hathaway conglomerate counts Apple as the biggest holding in its stock portfolio.

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Berkshire owned about 981 million Apple shares at the last count, making it one of the tech titan’s biggest shareholders. Its position was worth about $US115 billion as of Tuesday’s close, representing more than 40% of the total value of its portfolio.

Buffett’s company spent about $US35 billion between 2016 and 2018 to build its Apple stake, meaning it has more than tripled its money on paper. If the tech stock does lag the market over the next decade, as Dimensional’s study suggests, its future gains could pale in comparison.