Investing

Why Did Buffett Dump Apple?

Austin Smith

Published: May 19, 2024 9:05 am

Austin discusses Warren Buffett’s recent decision to sell a significant portion of his Apple (NASDAQ: AAPL) stock, highlighting that while the $20 billion sale is substantial, it doesn’t indicate a loss of confidence in Apple. Instead, Buffett’s actions are likely driven by tax considerations and strategic financial planning for potential large acquisitions.

Transcript:

Austin, Berkshire Hathaway just had its annual event in Omaha.
It’s a huge event every single year with a lot of attention.
But the biggest focus from this year was probably that Warren Buffett dumped quite a bit of Apple stock.

So I just wanted to get your take on this.

Is this declining confidence in Apple or is there more to the story?

Yeah, really great question.

And the headlines here are certainly exciting.

I mean, selling $20 billion in a single position is enormous.

But we have to put this into context.

First of all, it’s notable due to the dollar amount, but also that Buffett rarely ever trims his positions to the tunes of billions of dollars.

He said his favorite holding period is forever.

So it certainly on the surface looks to be maybe like he’s losing faith in Tim Cook or the Apple product lineup.

When we start to put this into the context of this position, a different story starts to emerge.

At the peak, Apple was roughly 50% of the publicly traded stock portfolio at Berkshire just due to the incredible price appreciation it’s realized since he purchased shares initially.

So after trimming about 13% of that stake, it’s still 40% of his publicly traded portfolio.

Buffett is still clearly voting with his wallet that he does believe in Apple.

So then the question is, why sell?

Does he need the cash?

Probably not.

Buffett has almost $170 billion in cash in the Berkshire balance sheet.

And a lot of people are saying that could pass $200 billion pretty soon here.

The real reason just seems to be at a shareholder meeting, he indicated that it might be for tax reasons.

And he sees tax rates potentially increasing.

And he said he’d rather pay 21% on those shares now than what they could be next year or the year after.

And given a lot of the budget shortfalls that have been in the headlines and all the wild spending by Congress, we all know that, you know, taxes going up meaningfully might be a real possibility in the next few years.

Should you follow Buffett’s lead because he sold $20 billion worth of Apple stock and dump your shares today?

Probably not.

We need to put this into context.

He really only trimmed his stake.

He took a little bit of money off the table, so to speak.

He was willing to pay taxes at a lower rate now.

And as Buffett himself has been saying for years, his elephant gun is loaded.

And he might be looking at a $50 to $100, maybe a $150 billion acquisition right now.

And that extra $20 billion that he might have gotten from his Apple stake could make that just a little bit easier to take down without really drawing down Berkshire’s balance sheet too much.

So at the end of the day, we call this a big headline, but a non-event.