Warren Buffett almost halved Berkshire Hathaway's massive stake in Apple in the second quarter of 2024, sending his conglomerate's cash pile to a record $277 billion. That mountain of cash could swell further this quarter after the conglomerate slashed its Bank of America position in July, unless Buffett finds something to buy.
The size of the Q2 Apple stock sales shocked the markets.
Clues in Q2 earnings filings suggest that Berkshire sold 390 million Apple shares during this period. That would be more than double the 126 million Apple shares it sold during the prior two quarters.
At the Berkshire annual meeting in May, Buffett said that Berkshire's holdings of American Express and Coca-Cola were "wonderful" businesses, but Apple is an even better one.
So why Buffett is selling his beloved Apple stock hand over fist? He may have had growth and valuation concerns.
But wait. There could be more behind Buffett's hefty cuts to his favorite stocks.
Defensive Warren Buffett Sells Apple, Raises Cash
One longtime Buffett watcher sees a desire to de-risk Berkshire's portfolio behind recent stock moves. Buffett, the chief allocator of Berkshire's capital, said in May that he hates spending money "unless we think we're doing something that has very little risk and can make us a lot of money."
The odds of that seem to be diminishing. Apple stock plunged on Monday amid recession fears. Shares of Bank of America and Berkshire Hathaway slid too.
"I like to look at Berkshire's cash holdings relative to the size of the company," Bill Stone, chief investment officer at the Glenview Trust, wrote on Monday after the news of the Apple and Bank of America stock sales. At 25%, "it is now at the highest point since 1990," he added, and up sharply over the past two to three years.
To Stone, that suggests Buffett-led Berkshire is "actively reducing risk" in a still-expensive and increasingly uncertain market.
As of June end, Buffett has been a net seller of stocks for seven straight quarters, growing its cash hoard. "This war chest of cash allows Berkshire to seize the initiative when the time comes," Stone said.
Timely Profit-Taking
Another analyst pointed to timely profit-taking as a possible driver for the recent stock sales.
In May, Buffett hinted that his Apple stock sales were a tax-saving move after sizable gains. He implied that selling now could avoid a bigger tax bill further down the road. Berkshire first bought Apple shares in Q1 2016. According to the Financial Times, Apple's stock price has vaulted by about 800% since then.
Concerns about higher future taxes may also explain why Berkshire sold Bank of America in a 12-day selling spree in July, Edward Jones analyst James Shanahan wrote on Saturday after Berkshire's Q2 earnings report.
Berkshire's cost basis in Bank of America shares is in the "low 14 dollars," the analyst told IBD on Monday. "Even with recent weakness, there's substantial embedded gains" in the bank stock, he added.
In Berkshire's 50-odd stock portfolio, Apple and Bank of America, along with American Express and Coca-Cola, have some of the largest unrealized capital gains, by his calculation.
Under the Trump administration, the U.S. lowered the corporate tax rate to 21% in 2017 from a prior 35%. And Buffett recalled in May that it has been an even bigger number in the past.
"Higher taxes are quite likely" given the scale of the present fiscal deficit, Buffett moaned.
Loss Of Charles Munger
Shanahan said he sees something "specific" to Apple driving recent stock trades as well.
He noted that Berkshire started selling Apple stock after its vice chair — and Buffett's right-hand man — Charles Munger died in November 2023. Those sales began in a small way in Q4 2023, with 10 million shares liquidated, and have accelerated sharply in the first and second quarters of this year.
"I wonder, perhaps, if Charlie Munger liked Apple stock more, or was more comfortable with the earnings outlook for Apple, than Warren Buffett is," Shanahan said.
After the latest cuts, Berkshire is estimated to still have 400 million shares of Apple remaining. It's estimated to have 942 million shares of Bank of America remaining.
Berkshire Stock, Apple And Bank of America Fall
On Tuesday, Berkshire and Bank of America shares rallied, while Apple fell further.
Berkshire stock slid 3.4% on Monday to undercut the 50-day average. Apple stock tumbled nearly 5% on Monday with Bank of America shares also falling amid a broad stock market rout on recession fears.
