Did Warren Buffett Just Make a $16 Billion Mistake?

Jeremy Bowman, The Motley Fool

Mon, Oct 21, 2024, 1:30 AM 4 min read

Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), is widely recognized as one of the greatest investors of all time. He's also one of the biggest evangelists for investing in the stock market. Buffett is an eternal optimist and a cheerleader for the U.S., saying that the newest babies in the country are the luckiest to have ever been born. He has encouraged buying stock in funds that mirror the S&P 500 (SNPINDEX: ^GSPC) because he believes investing in America has always been a smart move.

And yet, even with the roaring bull market this year, Buffett has pulled back on buying stocks. As a result, Berkshire Hathaway has been a net seller of equities. On Berkshire's balance sheet, its investments in equity securities declined by $69 billion, while investments in Treasury bills jumped by $105 billion, showing a rotation to safety. Some market analysts have interpreted those moves as a sign of Buffett's caution about the current market. Stocks are indeed expensive by historical averages, and Buffett has bemoaned the high valuations of equities, which have prevented his company from making an acquisition for quite some time.

Berkshire's stock moves always attract attention because of Buffett's stature. In particular, the conglomerate's decision to sell much of its stake in Apple (NASDAQ: AAPL) this year caused some to scratch their heads.

After all, Buffett has sung the tech giant's praises on multiple occasions, but Berkshire's sales of some of its Apple stock meant Berkshire lost out on billions in gains the stock has made since the sale. Did Buffett make a big mistake? Let's take a closer look.

Warren Buffett at a Berkshire conference. — Warre Buffett. Image source: The Motley Fool.

Buffett and Apple stock

Berkshire began buying Apple stock in 2016. At one point it owned roughly $175 billion worth of the iPhone maker. But Buffett's conglomerate has sold stock over the last three quarters, through the second quarter of 2024. (It hasn't reported its third-quarter trades yet.) The company sold 10 million shares of Apple in the fourth quarter of 2023, 116.2 million shares in the first quarter this year, and another 389.4 million in the second, leaving it with 400 million shares of the iPhone maker.

We don't know exactly what prices Berkshire sold Apple for, but using the quarter-end share price for each of those sales, we can estimate that Berkshire has lost out on roughly $16 billion in gains since the sale by selling when he did.

Even as Berkshire reduced its exposure to Apple, shares of the tech company have continued to rally to a new all-time high on enthusiasm for the iPhone 16 and the new Apple Intelligence AI platform.

Buffett hasn't said much about why he cut Berkshire's exposure to Apple, though he did allude to the risk of an increase in the capital gains tax rate at the Berkshire shareholder meeting in May. While that possibility was discussed in Washington last year, it seems like less of a risk now with a new administration coming into the White House.

Apple isn't the only stock Berkshire has been selling, either. Buffett also sold shares of his favorite bank stock, Bank of America. Berkshire sold roughly $10 billion of BofA stock, starting in the third quarter, and it likely lost additional gains on those sales as well, since that stock now trades near its 52-week highs after a solid earnings report.

Was it a mistake or a warning?

At current stock market levels, Berkshire's sales of Apple (and, to a lesser extent, Bank of America) look like a mistake, but Buffett is known for his contrarian thinking.

One of his best-known quotes is, "Be greedy when others are fearful, and fearful when others are greedy." With the S&P 500 having just posted its best performance in the first nine months of the year in nearly 30 years, it's understandable for Buffett to take a cautious approach.

However, there are lots of signs that the bull market could have plenty of room to run. Tech bellwether Taiwan Semiconductor Manufacturing just jumped based on a strong earnings report and said AI demand would continue for many years, and Nvidia's CEO recently said demand for its new Blackwell platform was "insane." Meanwhile, the Fed has initiated actions that are likely to lead to lower interest rates, which is typically bullish for stocks.

We'll have to wait a few more weeks to see if Berkshire continued to dump Apple stock in the third quarter, but for now, that decision looks like a costly mistake.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Did Warren Buffett Just Make a $16 Billion Mistake? was originally published by The Motley Fool

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