When Berkshire Hathaway (BRK.B) announced its earnings on Saturday, much was made of a note deep in its detailed filing.
Berkshire has been selling lots of shares of Apple (AAPL) , and the value of its investment had fallen from $174.3 billion on December 31 and $135 billion at the end of the first quarter to $84.2 billion as of June 30. From December to June, that's a decline of about 50%.
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Berkshire owned 915.6 million shares of Apple as of Jan. 2, according to Apple's proxy statement. The share count is probably now about 450 million shares, worth around $88 billion as of Friday.
At the company's annual meeting in May, Chairman Warren Buffett had told shareholders that Berkshire was trimming its Apple stake, largely because its investment in the tech giant had done so well it had huge capital gains. Other than that, he said at the time, he loves what Apple does.
(Buffett started investing in Apple in 2016, a late-comer to the tech party. The late Charlie Munger, Buffett's long-time partner, talked Buffett into investing in Apple, telling the Oracle of Omaha it was more a consumer stock than a tech stock.)
A magnificent stock pick
Selling some shares now may also be simple prudence. Selling now reduces Berkshire's risk to a frothy stock market. Either way, Buffett wasn't complaining about the long-term capital gains tax that might hit — about 20% of the profit. But when you've made so much money from one stock, you can afford the taxes.
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How big a gain? From the shares bought between 2016 and 2018, the gain would be over 400%. For shares bought between 2022 and the first quarter of 2023, the last time Berkshire was known to add to its Apple position, the gain would be 20% before taxes.
There is a counter-narrative. Some Apple watchers, plus CNBC's Jim Cramer, think there may also be concern about Apple's big China business. Revenue in products and services in China was off 6.5% from a year ago in Apple's fiscal third quarter and off 10% for the fiscal year-to-date.
The political tensions between China and the United States may be a worry, too.
Apple shares holding their own in market turmoil
Apple investors seem more confident about the company now. The stock was up 23.6% in the second quarter of 2024, after a 10.9% loss in the first quarter. It's up 3.9% in the third quarter.
Moreover, in a week where Amazon.com (AMZN) fell 8%, Microsoft (MSFT) dropped 4%, and Nvidia (NVDA) fell 5.1%, Apple was up 1%. It is up 14.2% this year.
Apple has returned to being the most valuable company in the world with a market capitalization of $3.37 trillion. That is still a bit pricey: Its forward price-earnings ratio is about 30. The Standard & Poor's 500's forward p/e is about 22, down from 22.72 as stocks were peaking.
So, what has Berkshire and Buffett done with the cash realized by these gains? Mostly put them in cash and Treasury bills. An easy source of cash to pay the capital gains taxes — if Berkshire can't find a way to shelter the gains.
More importantly, Buffett and Berkshire are waiting.
Remember, Buffett (and Berkshire Hathaway) is a classic value investor who doesn't chase the hot stock. Buffett and Berkshire look for great companies appropriately priced. (Munger had weaned Buffett off just buying cheap stocks.)
So, like a lot of investors, Buffett and his investment management team are watching the stock market's current volatility to run its course. In other words, looking for good buys at better prices. They have the cash.
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