Warren Buffett’s Sale of Apple Stock Marks a Strategic Shift in a Heated Market

In one of the most notable selloffs by a renowned investor, Warren Buffett has reduced Berkshire Hathaway's Apple holdings by 56% in the first half of 2024. This strategic move comes as Apple's valuation reached new heights, prompting speculation about Buffett’s market outlook.

Warren Buffett’s 56% Reduction in Apple Holdings Sparks Speculation on His Strategic Market Shift

Warren Buffett, a renowned investor, initiated a significant reduction in his substantial holdings of Apple stock in Q1 of 2024, one of the recent most widely publicized selloffs. Over the past two quarters, Berkshire Hathaway, the Oracle of Omaha, has disposed of approximately 510 million shares of the iPhone manufacturer, thereby reducing its holdings by approximately 56%. The suddenness and magnitude of the exit sparked speculation that Buffett's confidence in Apple's stock had diminished in the wake of the remarkable run over the past seven years, a surge Buffett timed and rode to near perfection.

As Fortune reported on August 11, Apple remains Berkshire's largest equity holding, accounting for 41% of the conglomerate's portfolio. This is a critical point to recognize. Buffett's admiration for Apple was evident at the annual meeting in May. He declared that Coca-Cola and American Express, two of his most cherished investments, were "wonderful" enterprises, but he praised Apple as "an even better one."

Buffett needs to disclose the reason for his decision to sell a significant portion of his Apple stake, and it is still being determined whether he will continue to maintain a substantial stake in the world's most valuable enterprise. Overall, it is evident that he is adopting a significantly more defensive stance in an exceedingly expensive market. The Apple dump accounted for the overwhelming majority of the $90 billion in stock sales that Berkshire made in the first half of 2024.

Due to this downshift, Berkshire's cash holdings increased from $189 billion at the end of Q1 to $278 billion. In July, Berkshire increased its war chest by selling approximately $4 billion in shares of Bank of America, its second-largest holding in recent years. Buffett, like Apple, acquired the stock at a low price and has since proved to be a highly profitable investment. This information was disclosed in the company's 10-Q. Buffett has recently acquired substantial amounts of additional capital that he intends to invest in undervalued investments that are as appealing as they were in the past, such as Apple or Bank of America.

Buffett’s Strategic Sale of Apple Stock Highlights the Risks of Overvaluation Amid Market Enthusiasm

Buffett's Apple gambit is a prime example of "selling high." Upon analyzing the trajectory of the colossus of Cupertino's profit and valuation figures, it is evident that the shares have risen from a screaming bargain (PE of 16) when Buffett acquired them to a dangerously expensive (PE of 32) level by the time he began to take significant profits. Apple's stock price has reached such a lofty peak that current shareholders, individuals, and funds who purchase now have a slim chance of earning double-digit returns in the years ahead. Additionally, the current highly elevated valuation indicates that a significant correction is considerably more probable than before the pandemic's onset when Apple's price was one-third of its current level.

Nevertheless, it is intriguing that Buffett failed to observe the "top tick" on Apple shares. They concluded Q2 at $211, which marked the conclusion of Berkshire's selling period. Subsequently, they increased by 12% to a record $235 on July 16. Apple's shares have been relegated to $211, where they began the quarter due to the Magnificent Seven's current turmoil. The news of Berkshire's unloading three days prior significantly influenced Apple's decline.

However, the American champion is not the victim of subpar performance; instead, it results from overheated expectations and excessive market enthusiasm. Buffett recognized in 2016 that Apple's prognosis was excessively pessimistic and made one of his most significant bets for his career. It was logical to extract a substantial portion of those spectacular gains and mitigate the impact if, as is highly probable, Apple's supporters anticipate an excessive amount.