Companies that make coin by holding stock in publicly traded businesses buy and sell for their portfolios constantly, and very few make waves when they do so. Rockstar investor Warren Buffett is a major exception. When Buffett and his crew buy or sell a title, the move creates waves on the stock exchange.
That goes double for their latest action -- a massive reduction in the Apple (AAPL +2.08%) position held in the bulging equity portfolio of Buffett's investment vehicle, Berkshire Hathaway (BRK.A 0.03%)(BRK.B +0.14%). Here are the particulars as we know them so far and my take on how the shift might affect both Apple and Berkshire.
A nearly 50% reduction
Last week, Berkshire filed its 10-Q quarterly report. In it, the company provided an update on some of the larger holdings in the equity portfolio. At the end of last December, the market value of Berkshire's Apple position was over $173 billion. The total market value of all Berkshire equity holdings was just under $354 billion, meaning Apple comprised just over half the portfolio in terms of dollar amount.
Fast-forward six months to the end of June 2024. The Apple holding had melted away considerably, falling by almost 50% -- again, using the yardstick of market value -- to slightly more than $84 billion. The tech giant's weight in the portfolio slimmed, too, down to less than 30%.
Buffett and Berkshire rarely, if ever, immediately explain why they buy or sell a stock. If we're lucky, the famed investor will expound on a particular move in one of his famously well-written letters to shareholders. It's just a shame these missives are published only once per year. Buffett might also comment when asked in a public forum or TV appearance, but he usually does so quite some time after Berkshire's made the move.
The point is, we don't know yet exactly why he and his team decided to unload such a big chunk of Apple stock or whether they intend to keep selling or maintain most or all of their still-sizable stake.
Selling stock and building the cash pile
So, we have to judge by actions and effects alone.
One important aspect is that Apple isn't the only stock Berkshire has exited from recently. As July morphed into August, the company sold over $3.8 billion worth of Bank of America stock. This has whittled Berkshire's position in the bank down to slightly over 942 million shares, giving it a stake of around 12% in the lender's equity.
Speaking of whittling down, the recent sales have helped slim down the equity portfolio's mammoth size. Its total market value was nearly $354 billion at the end of last year, then it was a shade under $336 million this past March 31, and finally, as June came to a close, it stood at less than $285 billion.
Berkshire breaks its equity investments down into three categories: banks, insurance, and finance; consumer products; and commercial, industrial, and other. Of the three, consumer products saw the most dramatic decline in total value between the ends of the first and second quarters, due in no small part to the Apple sales. The other two categories didn't fluctuate much by comparison.
According to The Wall Street Journal, all told, Berkshire sold $76 billion worth of stocks in the second quarter alone, a move that helped push up the company's cash holdings to a new record of almost $277 billion.
Keep calm and carry on?
Some have speculated that Buffett is getting defensive. Perhaps those recent sales indicate he's losing faith in certain vulnerable equities and building that cash pile for a rainy day. That may be partially true, but this feels like more of a portfolio adjustment to me.
That Apple stake swelled to a monster size, even for Berkshire. And when a stock is responsible for over half the weight of a portfolio, it makes that portfolio vulnerable -- what if Apple hits a rough patch? The company's performance has been mildly disappointing in recent quarters, after all, and its anchor product, still the iPhone, is soon to be 20 years old. Maybe a slimmer position is safer.
Bank of America is a good stock in its category. Still, banking is a cyclical industry, and veteran finance sector investor Buffett has a good sense for economic cycles (and may think this one's about to turn). Plus, Bank of America was an opportunistic buy for Berkshire back in the day, and it might have never been intended for a super long-term hold.
Returning to Apple, even with those busy sell-offs, Berkshire still has a huge position in the company. If history is any indication, Buffett, who's been known to spread out his sells across quarters, will continue shedding Apple until he and his team feel the position is sized appropriately.
This is sure to keep dinging the stock, but Apple bulls should hold fast. The company continues to be robustly profitable and is sure to remain so. It also has avenues for growth, particularly in the area of services revenue. I'm an Apple shareholder myself, and I'm hanging on to my shares no matter what Warren does. The stock's bulls should grit their teeth and hold fast, in my opinion.
