In the first half of 2024, Berkshire Hathaway sold a significant portion of its Apple holdings—115 million shares in the first quarter and another 390 million in the second quarter. This represents a 55.8% reduction in Berkshire’s Apple holdings since the start of 2024.
When Buffett began accumulating Apple shares between Q1 2016 and Q3 2018, the stock was trading at a PE multiple of around 10x to 15x, and the company was growing its revenue at an annualized rate of roughly 11%.
Today, Apple trades at a steep 33x PE multiple, has shown virtually no growth over the past two years, and is currently at peak profitability with a 31.3% operating margin. The company is using its free cash flow to repurchase its own shares at seemingly high valuations.
While Apple remains a great business, even the best businesses can become poor investments at excessive valuations. Buffett has historically been reluctant to sell wonderful businesses due to tax considerations, but his investment in Apple has grown nearly 800% since Berkshire first disclosed its stake, swelling to nearly 41% of Berkshire Hathaway’s public equity portfolio.
Buffett has never sold American Express or Coca-Cola for tax reasons, nor has he sold them when they became significant portions of his portfolio. However, he did express regret at Berkshire Hathaway’s 2006 AGM for not selling Coca-Cola when its stock price reached silly valuations in 1998.
Given the current conditions, there’s a good chance Buffett will continue trimming his Apple position in Q3. Regardless of the outcome, it’s likely a prudent move to reduce the concentration of Apple in Berkshire’s portfolio, especially when the stock is near peak valuation and profitability with minimal growth. Meanwhile, rising interest rates provide Berkshire’s burgeoning cash reserves with comfortable interest income.
Compound steadily,
Thomas