For years, Warren Buffett’s Berkshire Hathaway has been one of the biggest owners of Apple common stock.
At the end of 2023, Berkshire (BRK.A) and (BRK.B) owned 907.6 million shares, or 5.7% of Apple’s (AAPL) total shares outstanding. At the time, the shares were worth an estimated $174.3 billion.
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Early this year, Berkshire Hathaway started to sell its Apple shares. As of Sept. 30, it has cut its stake by two thirds.
It still has about 296 million Apple shares, if you work the math in Berkshire’s third-quarter earnings report.
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The quarterly earnings report, released Saturday, valued the Apple holding on Sept. 30 at $69 billion or about $233 per share.
Berkshire Hathaway has more than $320 billion in cash before taxes right now, a third of its total net worth, that can be deployed at any time. It can buy companies, it can buy stocks, it can retire its own shares.
The cash horde also includes the proceeds from its sale of $9 billion in shares of Bank of America (BAC) .
Buffett and the art of when to sell
Berkshire Hathaway is under no obligation to report all of the trades it has made in reducing its Apple position.
In theory, selling shares should reduce price because more shares are on the market.
But it appears that the sales were done so carefully that Apple’s share price rose from $192.53 on Dec. 31, 2023, to $233 by the end of the third quarter. For the year, Apple is up 15.8%.
So, Buffett won, and so did Apple shareholders.
Why is Buffett selling?
Apple shares are rising and sport a 15.8% gain on the year. Plus, it has the world’s top market capitalization: $3.37 trillion.
At Berkshire’s annual meeting in May, Buffett himself cited tax concerns were playing a part. Berkshire’s financial reports suggest its cost basis (what it paid for the shares) was $19.1 billion.
Berkshire made only minor adjustments to its stake over the years after assembling its position. It was Apple’s third-largest holding.
So, potentially, Berkshire had then, and undoubtedly still has, a large capital gain still on its books.
But Buffett was thinking even last spring Apple shares were getting too rich.
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Don’t pay too much
Another reason: Buffett and his investment managers are firm believers in buying in what the late Charlie Munger, Buffett’s great friend and closest advisor, once called “great companies at a great price.”
Munger, who died in 2023 at 98, had lobbied Buffett for years to buy into Apple. Buffett resisted because tech companies worried him. But Munger kept arguing Apple was — and is — as much consumer company as it is tech company.
But the risks now may be too great for Buffett and his team.
The price/earnings ratio of the Standard & Poor’s 500 is about 22 times projected earnings. It’s about 29 times over the last 12 months of earnings.
While Apple’s are selling at 26.7 times forward earnings, the market capitalization at $3.37 trillion may simply be too rich. And, besides, taking profits isn’t a sin.
Berkshire Hathaway CEO Warren Buffett (L) and the late Charlie Munger attend the 2019 annual shareholders meeting in Omaha, Neb.
JOHANNES EISELE/Getty Images
One last possibility: Buffett turned 94 on Aug. 30, and he may want to be sure that Berkshire is in prime financial condition for Greg Abel, whom Buffett has named as his successor.
The sprawling conglomerate has the seventh largest market cap among U.S. companies: about $974.3 billion, as of Nov. 1.
The market cap actually topped $1 trillion on Aug. 28.
Its core business has the has been insurance (GEICO and other companies). It also owns public utilities, furniture retailers, the BNSF Railway (the biggest U.S. railroad), real estate brokerages, See’s Candies.
But parking cash isn’t a bad thing, especially now, with bond yields rising ahead of the Presidential election on Tuesday and the Federal Reserve meeting that starts on Wednesday.
The 10-year Treasury yield on Friday was 4.397%, up from Thursday’s 4.29%. It has jumped from 3.62% on Sept. 16, two days before the Federal Reserve cut its key federal funds rate from 5.25% to 5.5% to 4.75% to 5.25%.
Berkshire earnings fall in third quarter
Berkshire reported earnings of $7,019 per class A share, down from $7,437 a share a year ago and below the consensus estimate of $7,335.
The results reflected $500 million in losses from Hurricane Helene and a $1.5 billion non-cash currency loss due to the decline of the U.S. dollar. It also estimated losses from Hurricane Milton at $1.3 billion to $1.5 billion.
The Class A shares closed Friday at $678,000, up 0.2%.The shares are up nearly 25% on the year.
The Class B shares were up 0.3% to $452.14. They’re up 26.8% in 2024.
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