XNine years ago, under Warren Buffett’s decision, Berkshire Hathaway made its initial investment in Apple. At the time, Buffett recognized that Apple was not just a technology company but also a consumer brand with enduring influence. This investment ultimately proved to be immensely successful, with Apple’s stock price surging by 766% from early 2016 to August 26 of this year.
However, starting from the fourth quarter of 2023, Berkshire has been reducing its holdings of Apple stock for multiple consecutive quarters, cumulatively selling 635 million shares, including 20 million shares in the second quarter of this year alone. It currently still holds 280 million shares, valued at approximately $64 billion, accounting for 21.4% of its investment portfolio. Apple remains its largest single holding. This series of reductions has drawn significant attention.
One important reason for the reduction may be that Apple no longer possesses the same level of investment appeal as it once did. When Berkshire initially built its position, Apple’s valuation was relatively low, whereas its current price-to-earnings ratio stands at 34.6 times, significantly higher than its five- and ten-year historical averages. Although Apple remains an exceptional company, Buffett likely believes that, at its current valuation, it will be difficult to continue achieving strong returns in the future.
At the same time, Apple’s growth momentum has noticeably slowed. Although its revenue in the third fiscal quarter increased by 9.6% year-over-year, this growth rate is unlikely to be sustained. Compared to three years ago, sales in the same period have only grown by 13.4%. Given its already massive revenue base and the near-saturation of hardware product penetration, achieving significant growth has become increasingly challenging.
On another note, Buffett’s decades of investment experience have given him keen insight into macroeconomic policies. He may foresee upcoming changes in tax policies. The current U.S. federal debt has reached $36 trillion, and with the fiscal deficit continuing to widen, the government may seek to increase revenue by raising tax rates. The current 21% corporate tax rate is already at a historically low level, and the capital gains tax could also potentially be increased. Realizing substantial gains before such changes take effect is undoubtedly a prudent financial move.
Additionally, Buffett will step down as CEO at the end of the year, handing over the reins to Greg Abel. As an investment master who has always prioritized a margin of safety, Buffett may wish to ensure his successor has ample cash resources. Berkshire currently holds a staggering $344 billion in cash, which aligns with his consistently cautious approach.
The investment in Apple is undoubtedly one of Buffett’s most successful cases, and the current reduction in holdings reflects both a cautious view of the company’s future growth and valuation, as well as a strategic approach to financial planning and succession preparation. For Apple shareholders, Buffett’s actions are worth deep consideration.
