Berkshire Hathaway released its third-quarter results over the weekend, showing a continued reduction in its Apple stake.
Berkshire began trimming its Apple holdings in the fourth quarter of 2023, and by the first half of 2024, it had shed half of its position in the stock. By the end of the third quarter, Berkshire was down to 67.2% of its original stake before the selling began.
As the world’s largest company by market cap, Apple commands attention, and Warren Buffett is often regarded as the best investor in the world. Naturally, when Berkshire sells Apple shares, it raises questions among other investors—should they follow suit? Did Buffett see something others didn’t? Before making any decisions, let’s examine possible reasons behind this sale.
#1 Buffett Cited Tax Reasons
During the Berkshire Hathaway Annual Meeting in May 2024, Buffett shared insights about the sale, explaining:
We don’t mind paying taxes at Berkshire, and we are paying a 21% federal rate on the gains we’re taking in Apple. And that rate was 35% not that long ago, and it’s been 52% in the past when I’ve been operating…
And the percentage that they’ve decreed currently is 21%. And I would say, with the present fiscal policies, I think that something has to give, and I think that higher taxes are quite likely, and if the government wants to take a greater share of your income, or mine or Berkshire’s, they can do it…
We always hope, at Berkshire, to pay substantial federal income taxes. We think it’s appropriate that a company, a country that’s been as generous to our owners… It’s been the place… I was lucky. Berkshire was lucky, was here. And if we… If we send in a check like we did last year, we sent in over $5 billion to the US federal government…
…And if I’m doing it at 21% this year and we’re doing it at a higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year.
Buffett cited two tax-related motivations for selling:
Lower Current Tax Rates: Buffett hinted that tax rates are relatively low now but could increase in the future, especially as the U.S. manages its budget deficit. In his view, paying taxes now, when rates are low, is akin to capturing a bargain—though here, it’s saving on future tax costs rather than buying a stock cheaply.
A Moral Obligation: Buffett has often stressed the importance of paying taxes as a privilege and a duty, especially in a country that has supported Berkshire’s success. He views tax payments as a way of contributing to a prosperous and stable business environment
#2 Berkshire Deputies Ted Weschler and Todd Combs May Have Increased Influence
While Greg Abel has been designated as Buffett’s successor as CEO, he is more focused on Berkshire’s operations, particularly in oil and gas. For managing marketable securities, Buffett has worked more closely with Ted Weschler and Todd Combs.
In a 2019 interview with Yahoo!, Buffett shared that each deputy managed around $13 billion of Berkshire’s equity portfolio and $8 billion in pension funds—up from $4 billion in 2012. Although we lack current figures, it’s likely that their responsibilities have expanded. If either Weschler or Combs decided to trim the Apple stake as a risk-reduction strategy, it might not have been entirely Buffett’s decision, although he may have consulted on it. It’s also a reminder that not all of Berkshire’s transactions are personally directed by Buffett.
#3 Unlikely: The Sale Was Due to Apple’s Fundamentals
Buffett has, on several occasions, sold stocks when he believed the businesses were no longer as strong as when he first invested. Notable examples include IBM, where transformation efforts fell short in competing with cloud companies; GE, which struggled with business unit performance and rising debt; and Wells Fargo, where management and cultural issues persisted after the fake accounts scandal.
However, in the May 2024 Berkshire Hathaway Annual Meeting, Buffett emphasized that Apple remains a “wonderful business” and assured that Berkshire intends to hold Apple stock long-term, even after he is gone. He stated:
But we have sold shares, and I would say that at the end of the year, I would think it extremely likely that Apple is the largest common stock holding we have now…
We own Coca-Cola, which is a wonderful business, and we own Apple, which is an even better business… And we will own, unless something really extraordinary happens, we will own Apple and American Express and Coca-Cola when Greg takes over this place…
This reinforces that Berkshire’s reduction in Apple holdings isn’t due to a loss of confidence in Apple’s fundamentals.
#4 Unlikely: The Sale Was Due to Portfolio Concentration
Apple once made up almost half of Berkshire’s equity portfolio—a level of concentration that traditional finance would consider risky. However, Buffett has often advocated for a concentrated portfolio, saying that diversification is mainly for those who don’t know what they’re doing. For skilled investors, he believes holding a few high-conviction stocks can maximize returns. So, this sizable Apple position was by design and not a reason for the sale.
#5 Unlikely: The Sale Was Due to Overvaluation
Buffett is known for his patience and discipline in paying a fair price for “wonderful” companies. While he is meticulous about valuation when buying, he tends to hold stocks for the long haul, often ignoring market fluctuations. His investment style rarely involves selling due to perceived overvaluation; he prefers to hold quality businesses for as long as they remain fundamentally strong. Even if Apple were overvalued, it is unlikely to be the primary reason for selling, as he generally resists taking profits that could disrupt compounding.
#6 Unlikely: The Sale Was Due to Overvaluation
Some commentators suggest that Buffett’s large cash reserves—now over $300 billion—signal that he’s positioning for a market crash. Buffett has observed the “Buffett Indicator,” which compares total market capitalization to GDP, suggesting markets may be overvalued if they exceed GDP significantly. Currently, the ratio is close to 200%, which traditionally signals overvaluation.
However, Buffett doesn’t rely solely on this indicator; if he did, he might have sold in 2013 when this ratio began climbing past GDP, potentially missing a decade of market gains. His decision to hold most stocks through recent highs indicates he’s not timing the market or expecting an imminent crash.
Conclusion
Seeing the world’s best investor sell shares of the world’s largest company is attention-grabbing, sparking speculation about the underlying reasons. While Buffett did confirm tax motivations, the other explanations here are speculative. Ultimately, rather than following Buffett’s actions blindly, it’s essential to conduct your own due diligence. More importantly, develop a strategy that aligns with your goals and risk tolerance, as every investor’s needs and situations are unique.
