It was supposed to be a quiet weekend after the Wall Street plunge recorded on Friday, August 2, which was triggered by disappointing US employment figures. But then Berkshire Hathaway, the firm of genius investor Warren Buffett, announced its second-quarter results.
It is the only company to do so on a Saturday, and it dropped a bombshell. The company sold off half of its Apple shares in the second quarter, for a total of $76 billion. As Apple stock went up in the second quarter, the portfolio value of Berkshire Hathaway’s stake went from $135 billion to $84 billion. Add this to the $3.8 billion in sales of Bank of America shares, offset by a few purchases, and Buffett, 93, has sold over $75 billion worth of shares. He now finds himself in charge of a huge pile of cash: $277 billion, or a quarter of his assets.
The move is significant. It puts an end to a strategy of massive investment in Apple initiated in 2016. The “Sage of Omaha” used to avoid investing in technology, claiming he didn’t understand it. He changed his mind in the face of Apple’s overwhelming dominance and incredible margins. Buffett has always invested in very high-margin sectors in virtually impregnable brands with dominant competitive positions, whether Coca-Cola, American Express or insurance companies.
Apple fit this bill and the choice was a resounding success, with the value of Apple stock having increased ninefold since Berkshire Hathaway’s first investment. At its annual general meeting in May, Buffett declared that he would part with some of its Apple shares, pointing to the tax risk: It is possible that the next administration will raise the capital gains tax, given the vast US budget deficit.
Less confidence in Tim Cook’s strategy
However, the explanation is not convincing enough. Three hypotheses have been put forward. Buffett doesn’t want to have a portfolio excessively concentrated on one stock – Apple still represents 30% of Berkshire’s. He has less confidence in Apple CEO Tim Cook’s strategy, as the company has fallen behind in artificial intelligence and remained highly exposed to China. The woes of Apple, which reported positive results this week, should be put into perspective, however. The company has regained its title as having the world’s largest market capitalization, ahead of Microsoft and Nvidia, with a stock market value of $3.35 trillion.
Finally, the investor may feel that the financial markets are highly overvalued – and he’s not necessarily the only one. Major billionaires have sold off many shares in recent months – notably Amazon founder Jeff Bezos, who has sold $13.9 billion worth of his company’s shares since the start of the year. Other executives such as Peter Thiel (Palantir) and Jensen Huang (Nvidia) have done the same, but for much smaller amounts.
You have 14.92% of this article left to read. The rest is for subscribers only.