That goes double for their latest action — a massive reduction in the Apple (AAPL 0.06%) position held in the bulging equity portfolio of Buffett’s investment vehicle, Berkshire Hathaway (BRK.A 1.06%) (BRK.B 1.18%). Here are the particulars as we know them so far and my take on how the shift might affect both Apple and Berkshire. Perhaps other shareholders should unload the tech giant’s equity, too.
The Coca-Cola Company
Bringing the existing-home sales market to a crawl opened the door for new home sales to thrive. With the above being said, it’s a near-certainty that Buffett sold close to 4 million shares of oil and gas stock Chevron (CVX 0.20%) during the second quarter. Buffett may still love Apple’s business characteristics as much as he did when he established the position, but there’s a big difference between paying a P/E multiple of 10 versus 30. Companies need to grow earnings at a high rate to justify their high multiples and for a company as large as Apple, that’s not as easy as it once was.
- “Interest rates are to asset prices, you know, sort of like gravity is to the apple,” Buffett previously said at Berkshire’s annual meeting in 2013.
- In his much awaited shareholder letter, Buffett reiterated his faith in the American economy and took aim at overpriced share buybacks.
- This book compiles the full, un-edited versions of every one of Warren Buffett’s letters to the shareholders of Berkshire Hathaway.
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As evidence, Berkshire’s book value per share — a good measure for changes in intrinsic value — compounded at 12% annually over the last five years, nearly keeping pace with the 13.1% gain in the S&P berkshire hathaway letters to shareholders 500. Going forward, Wall Street expects Apple to grow earnings per share at 10% annually through fiscal 2025. That makes its current valuation of 33.5 times earnings look outrageously expensive.
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Buffett admitted that he — and he alone — had sold the entirety of his company’s remaining stake in legacy media company Paramount Global (PARA -0.78%). Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
However, the iPhone maker has paid and increased its dividend every year since 2012. Roughly 72% of Buffett’s Berkshire Hathaway portfolio is invested in just five dividend stocks. Unlike the traditional P/E ratio, which divides a company’s share price into its trailing-12-month earnings per share and is easily the most-popular valuation metric, the Shiller P/E is based on average inflation-adjusted earnings from the prior 10 years. Examining a decade’s worth of earnings history helps to smooth out one-off events that can adversely impact traditional valuation models. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway.
key lessons following Warren Buffett’s move to sell half of Berkshire Hathaway’s Apple stock
That makes the current valuation of 22 times operating earnings look a little expensive, though Buffett clearly believes the stock is undervalued. “With our present mix of businesses, Berkshire should do a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent https://forexarena.net/ loss of capital,” Buffett wrote in his most recent shareholder letter. Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) reported a a net loss of $22.8 billion in 2022, due to market volatility. However, Berkshire’s “operating income” that excludes certain capital gains and losses, rose to a record $30.8 billion.
More specifically, it revealed an unprecedented level of selling activity in the company’s 44-stock investment portfolio. However, sales in China fell 6% and operating income slipped 10% during the quarter, as promotions failed to overcome waning demand for iPhones. Indeed, IDC estimates that quarterly iPhone shipments in China declined 3%, despite an acceleration in the broader market. As a result, Apple lost its spot among top five smartphone companies in the region, while local competitors like Huawei and Xiaomi gained share.
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Speaking of whittling down, the recent sales have helped slim down the equity portfolio’s mammoth size.
“Berkshire increased its ownership interest last year in each of its ‘Big Four’ investments – American Express, Coca-Cola, IBM and Wells Fargo,” Buffett wrote in the annual shareholder letter. Investors can use that filing to gauge Buffett’s feelings about the U.S. economy for the rest of the year. Berkshire’s investments in banking stocks have been trimmed as the Federal Reserve slows its rate hike pace and that will add a headwind to the banking sector. The Taiwan Semiconductor stake was only purchased in Q3 and may hint at geopolitical fears related to U.S.-Chinese diplomatic tensions. Despite selling these holdings, Berkshire Hathaway has not substantially increased its cash position and Buffett is happy to hold onto his prized assets. Warren E. Buffett first took control of Berkshire Hathaway Inc., a small textile company, in April of 1965.
Including the present, there have only been a half-dozen occasions in more than 150 years where the Shiller P/E ratio has topped 30 during a bull market. The previous five instances were all followed by plunges of 20% to 89% for Wall Street’s major stock indexes. Altogether, $75.536 billion in net equities were sold in the second quarter, which is the most Berkshire Hathaway has ever sold in a single quarter. “The $65 billion gain is nonetheless real – rest assured of that. But only $36 billion came from Berkshire’s operations. The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code.” “But we still have plenty of cash and are generating more at a good clip. So it’s back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants.”
Buffett was on Coca-Cola’s board of directors at the time, a position that made it difficult for him to sell the stock, even though he likely knew it was overvalued. Buffett’s longtime business partner Charlie Munger reportedly urged Buffett to resign from Coke’s board so that Berkshire could sell its shares, according to Buffett biographer Alice Schroeder, but Buffett remained and Berkshire held its shares. Warren Buffett sold roughly half of Berkshire Hathaway’s stake in Apple during the second quarter and revealed a record cash pile of more than $270 billion at the end of June, contributing to investor concerns about a possible recession. The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site.
The Oracle of Omaha may have disappointed many investors with his latest annual shareholder letter, which failed to provide an update on the economy. Buffett, now 92, has limited his public appearances in recent years and the letter marks his first major communication with shareholders since the company’s annual meeting last April. Investors had been hoping for an update on the U.S. economy and Buffett’s thoughts on inflation and a potential recession but were left to read between the lines. With the company’s record return for operating earnings, Buffett reminded investors that he and long-time partner Charlie Munger, 99, were “business pickers,” “not stock-pickers”. Going forward, Wall Street expects Berkshire to grow operating earnings at 12% annually over the next three years.
Berkshire’s 13F detailing its activity during the June-ended quarter is slated for release after the closing bell on August 14. Though the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than I was in school. For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. When Berkshire Hathaway (BRK.A 1.10%) (BRK.B 1.18%) CEO Warren Buffett speaks, the whole of Wall Street pays close attention. Investors looking to strengthen their portfolio with a defensive stock should consider buying a small position in Berkshire Hathaway today. Still, banking is a cyclical industry, and veteran finance sector investor Buffett has a good sense for economic cycles (and may think this one’s about to turn).
