Starting in the first quarter of 2024, Warren Buffett trimmed his immense Apple stock holdings in one of the most well-publicized sell-offs by a famous investor in recent history. Over the past two quarters, Berkshire Hathaway, the Oracle of Omaha, has sold around 510 million shares of the iPhone maker, reducing its holdings by around 56%. The scale and suddenness of the exit sparked speculation that Buffett’s optimism for Apple stock had waned after the fantastic run of the past seven years – a boom that Buffett timed and capitalized on perfectly.
It’s important to note that Apple remains Berkshire’s largest holding, accounting for 41% of the conglomerate’s portfolio. At the company’s annual shareholder meeting in May, Buffett’s admiration for Apple seemed undiminished. He declared that two of his long-standing most valuable investments, Coca-Cola and American Express, were “wonderful” companies, but he praised Apple as “an even better one.”
Buffett isn’t saying why he sold off such a large portion of his Apple stake, and we simply don’t know if he’ll hold a huge position in what remains the world’s most valuable company going forward. What’s clear is that he’s taking a far more defensive position overall in an expensive market. Berkshire sold $90 billion worth of stock in the first half of 2024, with the bulk of the proceeds coming from the sale of Apple.
This drop in share price pushed Berkshire’s cash holdings up from the previous record of $189 billion at the end of the first quarter to $278 billion. As disclosed in Q10, Berkshire further added to its war chest in July by selling about $4 billion worth of Bank of America stock. It was its second-largest holding in recent years, and a stock that Buffett bought cheaply like Apple and has proven to be an incredibly lucrative bet. Buffett now has plenty of extra cash to put into beaten-down options that look as tempting as Apple or Bank of America did years ago.
There is hardly a better example of “selling high” than Buffett’s Apple tactic. Looking at the evolution of Cupertino’s enormous earnings and valuation numbers, it is clear that the shares went from an unbeatable bargain (P/E of 16) when Buffett bought them to a dangerously expensive P/E of 32 when he started taking profits on a large scale. Apple’s share price has reached such dizzying heights that current shareholders, or people and funds buying now, have little chance of reaping double-digit returns in the years to come. And the current extremely high valuation means that a major correction is much more likely now than, for example, just before the pandemic hit, when Apple was fetching a third of today’s price.
Interestingly, however, Buffett missed the “top tick” on Apple shares. They ended the second quarter at $211 – the end of Berkshire’s selling period – before rising 12% to a record $235 on July 16. Since then, Apple has been caught in the maelstrom that roiled the Magnificent Seven, a defeat that sent shares back to $211 on August 8, where they began the quarter. News of Berkshire’s divestment three days earlier was a major contributor to Apple’s decline.
But the American champion is not the victim of poor performance, but of overheated expectations and excessive market enthusiasm. Buffett realized in 2016 that Apple’s prospects were far too bleak and made one of the biggest bets of his career. It made a lot of sense to pocket a large portion of those fabulous gains and soften the blow when, as is likely, Apple’s fans expected far, far too much.
