Warren Buffett sold nearly $2 billion worth of Apple last quarter. Here’s why.

CEO Warren Buffett is called apple (NASDAQ:AAPL) “A better business than any we’ve ever had” Berkshire Hathawayof (NYSE: BRK.A) (NYSE: BRK.B) Annual General Meeting in May last year. The stock is by far the largest holding in Berkshire’s portfolio, a sign of Buffett’s confidence in the company. However, the Oracle of Omaha decided to sell nearly $2 billion worth of Apple stock late last year.

Berkshire Hathaway owned 10 million fewer Apple shares at the end of the year than in September, according to the company’s 13-F filing with the U.S. Securities and Exchange Commission. But investors shouldn’t start worrying about Buffett’s distaste for the tech giant. There’s a clear explanation for why Buffett sold some of his Apple stock.

Close-up of Warren Buffett.

Image source: The Motley Fool.

Apple wasn’t the only stock Buffett sold last year

Buffett sold a lot of stock in 2023. In the first nine months of this year, Berkshire Hathaway sold $32.8 billion worth of stock (only buying $9.1 billion).

Buffett has good reasons to trim some positions and exit others entirely, but it’s impossible to ignore the tax consequences of Buffett’s sales.

Although Berkshire Hathaway treats deferred taxes on unrealized gains in its portfolio as a liability on its balance sheet, it does not pay until Buffett or one of Berkshire’s other investment managers sells the stock and realizes the gain. There is actually no need to pay these taxes. As of the end of September, Berkshire had about $85 billion in deferred tax liabilities and $207 billion in net unrealized gains, with stock sales earlier this year generating $5.4 billion in realized gains.

Buffett’s sell-offs continued in Q4, with two of the biggest sell-offs life value and Paramount Worldwide.

He cut 78% of Berkshire’s remaining stake in HP Buffett starts profiting in third quarterSince HP shares have fallen since Buffett first took the position, the stock sale may have resulted in a huge loss.

Buffett slashed Berkshire’s one-third stake in Paramount, another major loss since he first took a stake in Paramount in 2022, when the stock was trading above $30 a share.

Needless to say, Buffett’s investments in these two companies did not have the desired results, and he is not afraid of failure or admitting mistakes. Moreover, the significant losses caused by selling these two losing positions can be counted. Against Berkshire’s portfolio gains.

Therefore, in order to capitalize on losses, Buffett looks to cash in on some winning positions. Apple is one of his biggest triumphs. Therefore, it makes sense that he would have made gains that more than offset losses on other stock sales, resulting in minimal net gains realized and little tax expense.

Did Buffett make a mistake selling Apple?

This isn’t the first time Buffett has sold Apple stock at the end of the year.

He sold shares at the end of 2018, 2019 and 2020, most likely at a profit each time. These sales are purely for tax purposes. But Buffett said the decision to sell Apple stock at Berkshire Hathaway’s 2021 annual meeting “could have been a mistake.” When he asked Vice Chairman Charlie Munger if he also thought it was a mistake, he simply replied: :”Yes!”

As the stock price falls, Buffett hopes to correct his mistake by buying more Apple shares in 2022. Still, he missed out on significant gains from selling Apple. Apple shares hit an all-time high last year.

Buffett may just be repeating his mistake. That said, the amount of selling last quarter was nowhere near as much as what he sold in 2020. The 10 million shares he sold represented about 1% of Berkshire’s total holdings. If that turns out to be a mistake, Buffett has the opportunity to buy back those Apple shares at a lower price after the company’s stock price fell at the beginning of the year.

Apple stock currently offers relatively high value. It trades at 27.8 times analysts’ 2024 earnings expectations, compared with just 25.5 times expected 2025 earnings. While this is a premium relative to the overall market, Apple stock deserves a premium due to the generous capital returns planned and the $100 billion in annual free cash flow the company generates.

The important lesson for investors is that there are many reasons why investment managers sell stocks. This doesn’t necessarily mean that they no longer like the company or that they don’t think it’s worth much. In terms of Buffett’s views on Apple, he’s betting about $165 billion, which is a huge investment.

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Adam Levy Have a job at Apple. The Motley Fool has jobs and recommendations at Apple, Berkshire Hathaway, and HP. Motley Fool owned disclosure policy.

Warren Buffett sold nearly $2 billion worth of Apple last quarter. Here’s why. Originally published by The Motley Fool

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