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Warren Buffett's Surprising Move – Selling Half of Berkshire’s Apple Stock

Today, I’ll explain the unexpected decision by Warren Buffett to sell half of Berkshire Hathaway’s Apple stock. Let’s explore why this legendary investor made such a significant move and what it means for Apple’s future and the 2024 Stock Market.

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THE KEY STORY

Warren Buffett Is Selling Apple Stock

Buffett’s Big Move

Warren Buffett, often hailed as the greatest investor of all time, recently sold half of Berkshire Hathaway’s Apple stock. This massive reduction was revealed in their Q2 earnings report. The value of Berkshire’s current Apple holding is marked at $84.2 billion, down from the 5.1% of Apple they owned last quarter ($173.55 billion in today’s value).

Historical Context

Since buying Apple in 2016, Buffett has trimmed the position a few times, but none were as significant as this recent reduction. So, what happened? To understand this, let’s reference the 2024 Berkshire Hathaway annual meeting where Buffett discussed trimming his Apple stock in Q1.

Buffett’s Reasons

In the 2024 annual meeting, Buffett explained his rationale:

“We have sold shares... I would think it extremely likely that Apple is the largest common stock holding we have. Under current conditions, building a cash position is quite attractive.”

Buffett emphasized that despite the sale, Apple remains the number one stock in their portfolio. He also hinted at a broader strategy involving high-interest rates and cash management.

Tax Implications

Buffett also pointed out that the decision was influenced by tax considerations. Locking in massive gains on Apple at a 21% federal rate, compared to potential future higher rates, made financial sense. This aligns with his belief that higher corporate taxes & capital gains taxes are inevitable.

Contradictions and Strategy

Interestingly, this tax-driven decision contradicts Buffett’s previous stance in 2023, where he deemed making decisions based on tax considerations a mistake. Specifically, he mentioned how it was a mistake to trim his Apple position for that reason only. Charlie Munger had thought the sales were a mistake, as well. Now he does that same move, but bigger than ever. However, his overall strategy appears sound, especially considering the current economic environment. He will not lose money. The massive cash position is a position of strength.

Buffett’s New Investments

So, where is Buffett investing the proceeds from selling Apple? The answer may surprise some: Treasury bills. Buffett has dramatically expanded his cash cushion, now holding over $234 billion in treasury bills, earning over 5% on this money. This gives Berkshire Hathaway a massive war chest to invest in new opportunities should the market crash, while also earning reliable returns with no risk of downside.

Analysis of Apple Stock

Despite Buffett’s sell-off, Apple remains a strong company with an incredibly wide economic moat. Their product ecosystem, particularly the iPhone, continues to dominate the market. However, growth has slowed, and debt has risen due to their aggressive share repurchase program.

Financial Performance

• Revenue per Share: Flat from 2022 to 2023, expected to be flat again in 2024.

• Free Cash Flow per Share: Unlikely to surpass 2022 levels in fiscal 2024.

• Services Segment: Second largest revenue segment at $85.2 billion in 2023, fastest growing.

• iPhone Sales: Still the top revenue source but not growing, making up 52.3% of revenue.

Future Outlook

The upcoming Apple iPhone, integrated with Apple Intelligence, could drive a significant upgrade cycle, potentially boosting sales. Analysts have a consensus price target for Apple at $222.30, slightly below the current stock price, indicating it might be overvalued.

My Position on Apple

In my investment portfolio, I hold 50.8 shares of Apple at a cost per share of $121.60, giving me an +80.71% total return. Despite the recent news, I plan to hold my position. While I respect Buffett’s decisions, it’s important to understand them rather than follow them blindly.

Conclusion

Buffett’s decision to sell half of Berkshire’s Apple stock is strategic, influenced by tax considerations and the attractive returns from treasury bills. It puts Berkshire in a great situation if there is a stock market crash and ample opportunities. While Apple’s growth has slowed, its strong brand and product ecosystem ensure it remains a key player in the tech industry.

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- Zach
Dividend Data

Disclaimer: Dividend Dividend (Dividend Data LLC) is not a professional financial service. All materials released from Dividend Data (Dividend Data LLC) are for educational and entertainment purposes. Dividend Data (Dividend Data LLC) is not a replacement for a professional's opinion. Contributors to the Dividend Data (Dividend Data LLC) might have equities mentioned in the newsletter