Since 1965, Warren Buffett has built Berkshire Hathaway one of the most successful investors of all time. However, the curious thing is that the Oracle of Omaha built his fortune with a surprisingly simple investment philosophy.
Investing like Buffett You don’t need to possess a high-level degree or spend time behind a trading desk. Instead, adopting the principles of investing in companies with simple business models, consistent profits and positive brand appeal, and maintaining strong conviction positions over many years, can help you build your own generational wealth.
Apple (NASDAQ: AAPL) Berkshire stock has been a cornerstone of his portfolio for years. However, Buffett surprised some investors after recent documents revealed that Berkshire sold 389,368,450 shares of Apple During the second trimester.
To put it in context, this sale represented almost half of Berkshire's stake in the iPhone maker. Was it a good decision or did Buffett simply make an irreversible mistake?
Let's look at the pros and cons of selling Apple stock right now and assess what may have motivated Buffett's decision.
The case of the sale of Apple shares
Let’s start with the obvious: Berkshire’s latest sale of Apple stock is nothing new. The investment firm also reduced its position in Apple by about 13% earlier this year. During a shareholder conference in May, Buffett strongly hinted that he thought changes to the tax code were coming, which subsequently inspired some of his decisions to take profits off the table.
This reasoning made sense at the time, but I believe there were other reasons behind Berkshire's subsequent sale of Apple.
Berkshire Hathaway began buying Apple stock during the first quarter of 2016. While I don't have the precise dates of Berkshire's investment, Apple stock has returned a total of 855% since that January. This is nearly four times the S&P 500 IndexApple’s total return over the same time period. While it’s nearly impossible to sell a stock at perfect timing, Apple’s 19% return so far in 2024 is essentially identical to the S&P at the time of this article.
More importantly, I think investors may not be fully appreciating it. where Buffett is creating value for his shareholders outside of stocks right now. For the quarter ended June 30, Berkshire had $276.9 billion in cash and equivalents on its balance sheet. Berkshire's short-term investments include a massive $237.6 billion position in U.S. Treasury bills (T-bills). One of the hallmarks of Buffett's investment style is that he likes consistency, and rolling over Treasury bills is an incredibly reliable strategy.
The argument for not selling Apple shares
The most obvious reason I can think of for not selling Apple stock right now has to do with the story of artificial intelligence (AI). Earlier this year, Apple announced a partnership with OpenAI, the developer of the popular tool ChatGPT. The goal of this partnership is for Apple to bring a new wave of generative AI capabilities to its devices through the power of OpenAI.
Wedbush Securities analyst Dan Ives recently argued that the addition of artificial intelligence to Apple's ecosystem will spur a new wave of demand for next-generation iPhones. If Ives is right, Apple's business could be on the cusp of a major growth spurt.
Why Buffett doesn't care
While I understand the theory put forward by Ives, my personal view is that Buffett is not entirely enamored with the AI hype. Moreover, even though Berkshire sold about half of its stake in Apple, the iPhone maker still accounts for about 30% of the total portfolio. For these reasons, I don't think Buffett is too worried about the lost profits because Berkshire will benefit from the AI tailwinds anyway.
Also, considering that Buffett could have earned a commensurate return by investing in the S&P this year rather than having industry-specific exposures with Apple, I can understand why he took some money off the table and opted for a more reliable investment in Treasury bills. Also, given the uncertainty around the upcoming presidential election (and therefore potential changes to the tax code), as well as any volatility this may inspire in the markets, I don’t think Buffett’s decision to dump a chunk of Apple stock was ill-timed or misguided. As always, it seems like Oracle’s move was extremely calculated and positioned in a way that Berkshire stands to benefit no matter what happens.
Should You Invest $1,000 in Apple Right Now?
Before you buy Apple stock, consider the following:
He Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the Top 10 Stocks for investors to buy now…and Apple wasn't one of them. The 10 stocks that made the cut could yield outsized returns in the years ahead.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, You would have $731,449!*
Stock market advisor offers investors an easy-to-follow blueprint for success, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. Stock market advisor The service has more than quadruple the return of the S&P 500 since 2002*.
*Stock Advisor performance as of August 26, 2024
Adam Spatacco has positions in Apple. The Motley Fool has positions in Apple and Berkshire Hathaway and recommends them. The Motley Fool has a Disclosure Policy.
Warren Buffett just sold 389,368,450 shares of Apple. Was it a good idea? Originally published by The Motley Fool