CEO Warren Buffett called Apple (NASDAQ: AAPL) “a better business than any we own” at Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) annual shareholder meeting last May. The stock is, by far, the largest holding in Berkshire’s portfolio, a sign of Buffett’s conviction in the company. Yet the Oracle of Omaha decided to sell nearly $2 billion worth of Apple shares at the end of last year.
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Buffett’s Unprecedented Stock Sell-off
Buffett sold a lot of stocks in 2023. Through the first nine months of the year, Berkshire Hathaway sold $32.8 billion worth of stock (and bought just $9.1 billion).
While Berkshire Hathaway reports deferred income taxes on the unrealized gains in its portfolio as a liability on its balance sheet, it doesn’t actually have to pay those taxes until Buffett or one of the other investment managers at Berkshire sells shares and realizes a gain. As of the end of September, Berkshire’s deferred tax liability was about $85 billion. It had $207 billion in net unrealized gains, and stock sales earlier in the year generated $5.4 billion in realized gains.
Apple is Not Alone
Buffett continued selling in the fourth quarter. Two of the biggest sales were HP and Paramount Global.
He slashed 78% of Berkshire’s remaining position in HP, a move Buffett started to make in the third quarter. That stock sale likely came with a hefty loss, as HP shares have declined in value since Buffett first established the position. Buffett cut one-third of Berkshire’s position in Paramount. That represents another big loss from his initial stake established in 2022 when the stock traded above $30 per share.
Reflections on Apple and Other Investment Strategies
He sold shares at the end of 2018, 2019, and 2020, very likely taking gains each time. The sales were done purely for tax purposes. But Buffett said the decision to sell Apple shares was “probably a mistake” during Berkshire’s 2021 annual meeting. When he asked Vice Chairman Charlie Munger if he thought it was a mistake, too, he simply replied, “Yes!”
Buffett looked to correct his error by buying more Apple shares in 2022 as stock prices declined. Still, he missed out on significant gains by selling Apple. Shares reached a new all-time high last year. If it does turn out to be a mistake, it’ll be a much smaller one. What’s more, Buffett has an opportunity to buy back those Apple shares at a lower price, after the company’s stock dropped to start the year.
Apple shares currently offer relatively good value. They trade at 27.8 times analysts’ consensus estimate for 2024 earnings and just 25.5 times expected earnings in 2025. While that’s a premium to the overall market, Apple shares arguably deserve a premium thanks to the generous capital return program and the $100 billion per year the company generates in free cash flow.
The important lesson for investors is that there are many reasons an investment manager might sell a stock. It doesn’t necessarily mean they no longer like the company or they think it’s not a good value. And in the case of Buffett’s take on Apple, he’s betting about $165 billion it’s a great investment.
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Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and HP. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
