Warren Buffett’s Berkshire Hathaway has recently slashed its Apple and Bank of America holdings. The Apple position has been roughly halved this year, and the selling of Bank of America last week reached nearly $8 billion since mid-July, reducing Berkshire’s stake to 10.7% of the company. Buffett has indicated in recent years that he doesn’t see an abundance of compelling value in the public markets.
His recent lack of substantial purchases of entire companies, despite seeking ways to turn cash into ownership of enduring enterprises, underscores the apparent lack of sizable and attractively valued opportunities. Berkshire has been a net seller of equities from its investment portfolio in each of the past seven quarters—a period in which the S&P 500 appreciated by 50%. Private investor and longtime Berkshire shareholder Ed Borgato suggests the trimming of Apple and Bank of America does not reflect a macro view of any kind.
Buffett’s decision-making history certainly supports that assertion. The primary reason for the reductions in Apple and Bank of America likely reflects how large those positions had become. Apple amounted to about half of the investment book late last year, which Borgato terms an “inconvenient fact,” given Apple’s premium valuation against a much slower growth rate.
As for Bank of America, it’s been a wildly profitable investment entered opportunistically shortly after the global financial crisis.
Buffett trims tech and bank holdings
Trimming back to below the 10% threshold avoids the need for immediate transaction reporting, a sensible move for such a large position.
At the annual shareholder meeting in May, Buffett revealed that his chosen successor, Greg Abel, would have the final say over the investment side. This indicates a shift in Buffett’s thinking from when he thought the CEO and investment head roles would be split. Berkshire’s profit-taking has occurred while Berkshire’s own shares have outperformed and begun to look richly valued.
Since the bear market low in October 2022, Berkshire has almost perfectly tracked the iShares MSCI Quality ETF (QUAL) while outpacing the S&P 500—a reflection of money flowing steadily into dominant companies with stellar balance sheets and stable profitability. The quality segment of the market, including cash-rich, high-margin tech companies and other high-return businesses, has served investors well throughout uneven earnings growth and higher interest rates since 2022. However, this market tier now trades at the high end of its historical valuation range.
In this process, Berkshire’s price-to-book-value ratio has climbed above 1.6, which it has only exceeded a few times over the past 15 years. The company slowed share repurchases to a trickle last quarter, with Buffett known to be notoriously picky about buyback prices. With nearly $300 billion in cash, Berkshire holds a significant buffer but also a burden.
Buffett has spoken of his willingness to collect close to 5%, indicating a cautious approach as he seeks value in an apparently overvalued market.
