Warren Buffett’s recent stock moves have sparked questions about what they mean for the market and economy. Buffett’s Berkshire Hathaway has slashed its holdings in Apple and Bank of America in recent months. The Apple position has been roughly halved this year.
The selling in Bank of America last week reached nearly $8 billion since mid-July, dropping Berkshire’s stake to 10.7% of the company. However, the answer may not be as simple or alarming as it seems. Buffett has indicated in recent years that he doesn’t see an abundance of compelling value in the public markets.
The fact that he hasn’t made a hefty purchase of an entire company in a while underscores the apparent lack of opportunities of the required size and valuation. This isn’t much of a clue about future market prospects or the macroeconomic moment. Berkshire has been a net seller of equities in its investment portfolio for the past seven quarters.
This is a period during which the S&P 500 appreciated by 50%. Longtime Berkshire shareholder Ed Borgato says the trimming of Apple and Bank of America does not reflect a macro view of any kind. “That would be entirely inconsistent with his sensibility and decision-making history,” Borgato noted.
The sell-down in Apple and Bank of America likely reflects the sheer size those positions became.
Buffett trims Apple, Bank stakes
Apple had grown to be an enormous portion of the portfolio and carries a premium valuation against a much slower growth rate.
Regarding Bank of America, it’s been a wildly profitable investment entered in an opportunistic fashion shortly after the global financial crisis. There is probably some rationale in paring Berkshire’s stake to below the 10% threshold, above which holders need to report transactions almost immediately. This occurs as Buffett, 94, prepares Berkshire Hathaway for future leadership under Greg Abel, who will have final say over the investment side.
This shift suggests that moving capital into and out of minority stakes in public equities could be a less significant aspect of Berkshire Hathaway’s future. Berkshire’s profit-taking in big positions comes at a time when the company’s own shares have outperformed and begun to look richly valued. Since the bear-market low in October 2022, Berkshire’s stock has almost perfectly tracked the iShares MSCI Quality ETF (QUAL), while outpacing the S&P 500.
This reflects how money has steadily flowed into dominant companies with stellar balance sheets and stable profitability. The company slowed the repurchase of its own shares to a trickle in the latest quarter, with Buffett known to be notoriously selective about buybacks. Additionally, Ajit Jain, the vice chairman who runs the insurance division and has worked for Buffett since 1986, sold about half his personal Berkshire holdings, valued at $139 million.
Buffett himself alluded to higher corporate tax rates ahead when addressing sales of Apple shares earlier this year. The nearly $300 billion in cash held by Berkshire is both a buffer and a burden. Buffett has spoken of his willingness to collect close to 5%, reflecting his measured approach in a period of evolving market dynamics.
