Warren Buffett’s Berkshire Hathaway has dramatically reduced its stake in iPhone maker Apple as part of a broader strategy involving the sale of $76 billion in stocks.
The company cut its position in Apple by more than $50 billion to $84.2 billion in the second quarter, generating substantial investment profits according to filings published on Saturday.
Significant reduction in Apple shares
The data suggests that Berkshire sold roughly 390 million Apple shares, equating to about half of its stake.
These sales, along with other stock divestitures, produced an after-tax realized gain of $47.2 billion, marking a significant return on an investment first initiated by one of Buffett’s deputies in 2016.
This strategic move has propelled Berkshire’s cash holdings to a record high of $277 billion, an increase of $88 billion from the previous quarter.
The company has reallocated these proceeds into short-term Treasuries, reflecting Buffett’s cautious stance towards the current equity markets in the US.
Long-term commitment to Apple
Despite the substantial sell-off, Buffett has reiterated his long-term commitment to Apple. In May, he indicated to shareholders that Apple would remain a cornerstone investment for Berkshire, alongside other significant holdings like Coca-Cola and American Express.
“Unless something dramatically happens that really changes capital allocation strategy, we will have Apple as our largest investment,” Buffett stated at Berkshire’s annual meeting.
He added,
“But I don’t mind at all, under current conditions, building the cash position when I look at the alternative of what’s available in the equity markets and I look at the composition of what’s going on in the world, we find it quite attractive.”
Historical context and investment strategy
Apple has been one of Berkshire’s most crucial equity investments in recent years, particularly as US tech stocks have driven broader market gains.
Historically, Buffett and his late investment partner Charlie Munger were cautious about investing in technology companies.
They notably missed opportunities with companies like Google and had a less successful venture with IBM in 2011.
However, this approach shifted in 2016 when Buffett decided to invest heavily in Apple.
Berkshire has spent approximately $40 billion on Apple shares since then, a sum that includes purchases by Buffett, his investment deputy, and an insurance unit owned by Berkshire.
Market reaction and future plans
Apple’s stock has delivered a total return of nearly 800 percent since Berkshire first disclosed its investment, showcasing the substantial gains achieved from this strategy.
Christopher Rossbach, the chief investment officer of Berkshire investor J Stern & Co, noted that the sales of Apple stock reflected Buffett’s adherence to valuation discipline.
Rossbach remarked,
“The question of how he will deploy the cash and whether he can find investment opportunities among stocks or returns it to shareholders through buybacks will be an ongoing question that will not go away.”
Additional divestitures and financial performance
Beyond Apple, Berkshire disclosed continued divestitures in other positions following the end of the second quarter.
The company sold $3.8 billion worth of Bank of America shares over 12 consecutive trading days, reducing its stake in the bank to 12.1 percent.
Berkshire has also benefited from rising interest rates set by the Federal Reserve over the past two years, significantly boosting interest income on its portfolio of Treasury bills.
The company earned $2.6 billion in interest income in the second quarter and $8 billion over the past year, surpassing the $5.4 billion it received in dividends from its $285 billion stock portfolio.
Economic insights from Berkshire’s quarterly results
Berkshire’s quarterly earnings are closely watched for insights into Buffett’s investment perspectives and the overall performance of the US economy.
The latest results suggest cooling economic growth, although the economy remains generally robust.
Operating earnings rose 15 percent from the previous year to $11.6 billion, driven by a recovery in Berkshire’s insurance unit.
Pre-tax underwriting profits at auto insurer Geico more than tripled to $1.8 billion, attributed to increased prices for policyholders.
Revenues at Berkshire’s railroad subsidiary BNSF remained flat, with higher volumes of consumer product shipments offset by a decrease in coal transportation. Sales at several of its manufacturing businesses, including Marmon and Iscar, declined during the quarter, whereas revenues increased in segments such as NetJets and Precision Castparts.
However, the company noted a decline in sales at Fruit of the Loom and its restaurant supply business.
Warren Buffett’s strategic decision to significantly reduce Berkshire Hathaway’s stake in Apple highlights a cautious approach to the current equity market landscape.
While maintaining a long-term commitment to Apple, the move reflects a broader strategy to build cash reserves and capitalize on more stable investment opportunities.
As Berkshire continues to adjust its portfolio, the financial community remains attentive to Buffett’s next steps.
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