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Legendary investor Warren Buffett started the year with a huge stake in Apple (NASDAQ:AAPL).
In fact, it was by far the largest stake his company had. Berkshire Hathawayin any publicly traded company. In recent weeks, it has emerged that Buffett has sold around $75 billion worth of Apple shares since the beginning of the year.
Does that mean he's taken a bearish view of the company? Not necessarily. After all, he still has a massive stake in Apple even after the sale, from what we know for now.
Buffett has yet to publicly address the reason for the sale. Still, I think there are three excellent lessons that all investors can take away from it.
1. stocks are investments, not common-law partners
Does Warren Buffett love Apple?
It has all the hallmarks of a classic Buffett purchase: a huge market of potential customers, proprietary technology, a well-established brand and attractive profit margins. The investment has been hugely profitable for Berkshire.
But that's exactly what it is: an investment.
Buffett is a rational investor focused on financial success, not an emotional romantic who falls in love with the stocks he owns.
It's easy to become emotionally attached to a stock, if only out of pride. Buffett sometimes appears to be in love with certain stocks, but he's actually a financial investor, pure and simple.
2. Diversification is important
Buffett selling so many Apple shares also helps reduce one of the challenges I think Berkshire had been facing.
As Apple's stock soared (it has more than tripled in the past five years, underscoring once again that Buffett is a brilliant investor), it came to represent an outsized proportion of Berkshire's publicly traded stock portfolio.
An investor of any size, from beginner to Buffett, needs to manage risk.
Maintaining a properly diversified portfolio is an important part of that. In this sense, one can be a victim of one's own success. As Apple soared, it came to occupy an increasingly larger share of Berkshire's portfolio.
However, diversification is always a good idea. Selling some Apple shares is a good example of this.
3. Trying to time the market accurately is a fool's game
Apple's stock price has risen since the first half of the year, when Warren Buffett was selling.
So did you sell too soon?
To be fair, one of the factors contributing to that price trend may have been the fact that Buffett dumped so many stocks in the first half.
But most importantly, in my view, Buffett is comparing what he has to what he thinks it's worth. That's different than trying to predict the absolute peak and then exiting just before it.
Apple could go lower from here, due to a high valuation and declining sales. Then again, those factors have been true all year, and Apple has already gained 20%, nonetheless. It's possible it could go even higher.
Rather than trying to time the market exactly (a fool's game), Buffett took a lot of money off the table and made a very sizable profit in the process.
