Billionaire investor Warren Buffett once referred to Apple (AAPL +1.18%) as "probably the best business I know in the world." For years, it has been a top holding in the Berkshire Hathaway (BRK.A +0.85%) (BRK.B +0.86%) portfolio. Buffett likely remains incredibly bullish on Apple's future, but he has, nonetheless, been selling a lot of the company's stock over the past year. This past quarter marked the fourth consecutive period when Buffett reduced his stake in the iPhone maker.
Cumulatively, it results in a fairly sizable change in Berkshire's overall portfolio. While Apple remains the top holding, it isn't taking up nearly as large of a chunk as it was before. Here's how the Berkshire portfolio has changed and what lessons investors can take away from Buffett's latest moves.
NYSE: BRK.B
Key Data Points
Apple now accounts for just 23% of Berkshire's portfolio
Today, Apple stock makes up less than one-quarter of Berkshire's overall portfolio. That's a significant change from just a year ago when Apple was making up close to half of all of its holdings. Just four stocks back then were representing 71% of Berkshire's holdings, and that has changed dramatically with Buffett's stock sales over the past four quarters.
The top four stocks remain the same in Berkshire's portfolio: Apple, American Express, Bank of America, and Coca-Cola are still firmly at the top. But in total, they now account for approximately 59% of the total portfolio.
The biggest change is the gap, however. A year ago, the second-largest holding was Bank of America, taking up nearly 9% of the portfolio, which was well behind the near-49% that Apple represented. Today, Apple and American Express are the top two holdings, with the former accounting for 23% of the portfolio and the latter being not far behind at 15%.
NASDAQ: AAPL
Key Data Points
This doesn't mean Buffett sees anything wrong with Apple's stock
It's important to note that while Buffett has drastically trimmed his position in Apple (at $70 billion, his holdings are now less than half of what they were a year ago), that doesn't mean he's any less of a fan of Apple. Buffett's main goal is to look out for shareholder interests, and cashing out profits before possible changes to capital gains taxes might be a motivating factor for him, especially given how well Apple stock has performed over the years, with it now being among the most valuable companies in the world with a market cap of $3.5 trillion.
Additionally, Buffett famously doesn't rely on economic forecasts, or make decisions, based on where he thinks the economy is heading. The Berkshire chief is a long-term investor who has remained invested in far more troubling times than where the economy is today. Apple, meanwhile, has generated an impressive $109 billion in free cash flow over the trailing 12 months, which is a clear sign the business is still doing phenomenally well.
What can investors learn from Buffett's recent moves?
For investors, there are a couple of important takeaways from Buffett's significant stock sales that are worth noting here.
The first is that it's OK to sell a stock you like for the sake of securing some profit. You don't need to be all-in on a stock or completely out of it. If it's doing extraordinarily well, a prudent move may be to sell out a good chunk of your holdings. That can minimize your risk if you're worried about a downturn.
Secondly, having a more diversified portfolio can be advantageous at a time when valuations are high. If Berkshire's portfolio had still been heavily tilted toward Apple, it would have been more vulnerable to a correction in the markets. Berkshire still isn't all that diverse, with such a huge chunk of its portfolio allocated to just four stocks, but it's certainly more diverse than it was a year ago. Putting your eggs in one highly valued stock, regardless of how much you may love it, can be a risky position to be in.
Lastly, there's nothing wrong with holding more cash if you're not sure what to invest in. Buffett has often talked in baseball terms about waiting for a pitch in your "sweet spot" to hit. And that's what I think Berkshire may be doing with its growing cash load. It's waiting for an opportunity to come along, perhaps if there is a market sell-off, to make not just any move but a significant one in value stock that is priced at a discount and which possesses a lot of upside. Having a strong cash balance on hand can free up investors to take a big swing at a great opportunity which comes up.
