When Berkshire Hathaway (BRK.B) announced its earnings on Saturday, there was much talk of a note deep into its detailed presentation.
Berkshire has been selling a lot of Apple stock (APL-American Lead Association) and the value of its investment had fallen from $174.3 billion on Dec. 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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According to Apple's proxy statement, Berkshire owned 915.6 million Apple shares as of Jan. 2. The share count is now likely about 450 million shares, worth about $88 billion as of Friday.
At the company's annual meeting in May, Chairman Warren Buffett had told shareholders that Berkshire was reducing its stake in Apple, largely because its investment in the tech giant had performed so well that it had generated huge capital gains. Aside from that, he said at the time that he loves what Apple does.
(Buffett began investing in Apple in 2016, a latecomer to the tech party. The late Charlie Munger, a longtime Buffett partner, convinced Buffett to invest in Apple, telling the Oracle of Omaha that it was more of a consumer stock than a tech stock.)
A great choice of stocks
Selling some shares now may also be a matter of prudence. Selling now reduces Berkshire's risk in a buoyant stock market. Buffett wasn't complaining about the long-term capital gains tax that could hit him (about 20% of profits), but when you've made so much money on a stock, you can pay taxes.
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How big would the gain be? For shares purchased between 2016 and 2018, the gain would be more than 400%. For shares purchased between 2022 and the first quarter of 2023, the last time Berkshire was known to have increased its position in Apple, the gain would be 20% before taxes.
There is a counternarrative. Some Apple watchers, including CNBC's Jim Cramer, believe there may also be concern about Apple's big business in China. Revenue from products and services in China fell 6.5% from a year earlier in Apple's fiscal third quarter and 10% so far this fiscal year.
Political tensions between China and the United States may also be a cause for concern.
Apple shares remain strong despite market turmoil
Apple investors now seem to have more confidence in the company. The stock rose 23.6% in the second quarter of 2024, after a loss of 10.9% in the first quarter. In the third quarter, it rose 3.9%.
Also, in a week in which amazon.com (amazon.com) fell 8%, Microsoft (MSFT) fell 4% and Nvidia (NVDA) It fell 5.1%, Apple rose 1%. It is up 14.2% this year.
Apple is back to being the world's most valuable company with a market capitalization of $3.37 trillion. Still, it's a bit pricey: Its forward price-earnings ratio is around 30. The forward price-earnings ratio for the Standard & Poor's 500 is around 22, down from 22.72 when the stock was at its peak.
So what have Berkshire and Buffett done with the cash from these gains? They've mostly put it in cash and Treasury bills. An easy source of cash to pay the capital gains taxes, if Berkshire can't find a way to protect the profits.
Most importantly, Buffett and Berkshire are waiting.
Remember, Buffett (and Berkshire Hathaway) is a classic value investor who doesn't look for trendy stocks. Buffett and Berkshire look for great companies at the right prices. (Munger had gotten Buffett to stop buying cheap stocks.)
So, like many investors, Buffett and his investment management team are watching the current volatility of the stock market to see if it continues on its course. In other words, they are looking for good buys at better prices. They have the cash.
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