The big story with Berkshire Hathaway's second-quarter update was that Warren Buffett slashed his company's stake in Apple (NASDAQ: AAPL). At the end of 2023, Berkshire owned more than 905 million shares of the iPhone maker worth over $174 billion. Today, it has 400 million shares of Apple worth roughly $90.7 billion.
Many investors could still be scratching their heads about why Buffett sold so much of Berkshire's position in Apple. There's one theory we can safely put to rest, though. Was Buffett's big sale of Apple a bet on Kamala Harris beating Donald Trump? Nope.
Vice President Kamala Harris delivers remarks at the 40th Annual Black History Month Virtual Celebration, hosted by Congressman Steny Hoyer of Maryland, Saturday, Feb. 27, 2021, in the South Court Auditorium of the Eisenhower Executive Office Building at the White House. (Official White House Photo by Lawrence Jackson).
An easy answer
At Berkshire Hathaway's annual shareholder meeting in May, Buffett talked about Berkshire's first-quarter sales of Apple stock. He hinted that taxes were part of the motivation behind selling. Speaking about paying taxes, the legendary investor said:
It doesn't bother me in the least to write that check and I would really hope with all that America's done for all of you, it shouldn't bother you that we do it. And if I'm doing it at 21% this year and we're doing it a little higher percentage later on, I don't think you'll actually mind the fact that we sold a little Apple this year.
Vice President Harris wants to increase the corporate tax rate from 21% to 28%. Did Buffett's sale of Apple stock reflect this proposal from the Harris campaign? Not at all.
President Joe Biden didn't drop out of the race for the Democratic presidential nomination until July 21, 2024, after the end of the second quarter. Also, Harris didn't announce her plan to increase corporate tax rates until August. Buffett had already completed his Q1 and Q2 sales of Apple before either development. Even the presidential debate that led to pressure on Biden to discontinue his pursuit of the 2024 nomination didn't happen until June 27, and Buffett had likely already done most of his Q2 selling of Apple stock by then.
Sure, Buffett's nickname is "the Oracle of Omaha." Even his oracular powers, though, wouldn't be able to predict the wild turn of events we've seen over the last six weeks on the U.S. political front.
Buffett's bet on higher taxes
However, it's possible that Buffett thought that Biden would beat Trump and was worried about rising taxes if that happened. Most polls were close between the two men during the first half of the year. Biden's proposed budget for fiscal year 2025 called for corporate tax rates to increase to 28% -- the same level as Harris later proposed.
Whatever Buffett's views about the 2024 presidential race, he clearly anticipates that U.S. corporate tax rates will increase in the future. Why? He's an expert at analyzing financial statements, and the financial statements of the U.S. government don't look very good.
The U.S. hasn't had a budget surplus since 2001. Its deficit in fiscal year 2023 was $1.7 trillion. The national debt totals more than $35 trillion. Buffett probably looks at these numbers and knows that taxes -- including corporate taxes -- almost certainly will go up at some point.
Why Buffett could regret selling Apple
And yet I still think Buffett could regret selling so much of Berkshire's stake in Apple. The timing of his big sale might not have been the best.
Apple is on the cusp of launching its first generative AI functionality. Some Wall Street analysts believe this will ignite an iPhone upgrade supercycle as consumers trade in their old iPhones for new ones that support the genAI features. If they're right, Apple stock could deliver impressive gains over the next few years -- regardless of who wins the presidency this November.
