Berkshire halves Apple stake, boosts cash to $277B as it gets 'defensive'

https://www.reuters.com/business/finance/berkshires-cash-hits-277-bln-buffett-slashes-apple-stake-operating-profit-sets-2024-08-03/

by alentred • 2 years ago

71 96 2 years ago

reuters.com

pseudosaid• 2 years ago

Someone’s going to rebuy at a lower price later

talldayo• 2 years ago

The real question is whether those bagholders will make as much as Berkshire did holding the same stock.

dgfitz2• 2 years ago

I wonder how this plays given the fearful/greedy rule.

kevmo• 2 years ago

Buffett just sold for an enormous profit while the market was trending near all-time highs.

Selling near all time highs = being fearful while others are being greedy.

HenryBemis• 2 years ago

And he now has a hefty amount in cash, so if things go bad, he can buy Low again, and enjoy another rally to the previous highs.

If not, then he has enough cash to buy/support the next big thing.

freedomben14• 2 years ago

I think the bears are vastly underestimating the size and power of the moat (or garden wall) that Apple has built. Apple's brand loyalty is ludicrously high, but even the people who don't care that much about the brand are way more trapped in the ecosystem than most people realize. Seeing a heavy Apple user try switching to Linux on their laptop was a real eye opener for me.

I'm bullish on Apple stock because they could afford to go a very long time without huge wins, and still be wildly powerful and in control of the tech lives of a huge percentage of the population. Apple also iterates and polishes over time until it's the best, and they have plenty of time. Going bearish on Apple is a bad move IMHO.

currio• 2 years ago

What you said (if true) makes Apple a great business. And your reasonable arguments make a good case for that.

But does it make a good investment? A good investment is investing in a great business at a reasonable price. If the price is unreasonably high, then even a great business makes for a bad investment.

freedomben14• 2 years ago

But does it make a good investment? A good investment is investing in a great business at a reasonable price. If the price is unreasonably high, then even a great business makes for a bad investment.

This depends on whether you are thinking short-term or long-term. Short-term, I don't know because at this point I'm exclusively a long-term investor (something I might should have mentioned in my original comment).

The current price (for a company as big and mature as Apple) is essentially a gauge of how bullish vs bearish big investors are feeling about the sector and the specific company. It may fluctuate up and down a little bit based on news and such, but long-term I expect it to do well.

sk11001• 2 years ago

The thing about Berkshire is that they're so big that they can either buy pieces of huge companies like Apple, all of which have high valuations, or they can sit on the cash. Nothing else moves the needle for them - an amazing multi-million dollar business would be 0.0.. % of their portfolio.

zpeti• 2 years ago

I don’t think this has anything to do with apple. It’s about getting out before a likely market crash, that will inevitably lower the value of almost all companies.

The only risk here for buffet is the fed coming in with a huge rate cut or just suggesting it, or restarting QE in light of a market crash, which will give stock markets an insane boost (including apple)

loceng2• 2 years ago

Are they putting their cash into gold or similar then? A market crash will also coincide with the US dollar crash, no? Or is a market crash separate from the US dollar failing?

agumonkey• 2 years ago

Gotta say they handled the post jobs era well financially.

abirch• 2 years ago

I don't think he's necessarily bearish on Apple. Buffett could feel like the entire market is overvalued like in 2001. Even Microsoft fell for a few years with great profits.

freedomben14• 2 years ago

Thanks, that's very fair. Berkshire still has a pretty huge stake, which they wouldn't be holding if they were bearish.

throw0101d• 2 years ago

I think the bears are vastly underestimating the size and power of the moat (or garden wall) that Apple has built.

See 'Are "Good Companies" Good Investments?' (references used in the description):

* https://www.youtube.com/watch?v=ZY_NFQNUr_k

The above is a summary of this podcast episode, 'The "Good Company is a Good Investment" Fallacy':

It sounds reasonable to say that investing in the most popular companies would produce the best returns, but this is just not how asset pricing works. Today on the show, we unpack the ‘good company is a good investment’ fallacy. Before diving into the main topic, we kick off our discussion on the subject of index funds with Robert Wigglesworth’s Trillions. From there, we share some updates about custom indexing and home buying in Canada, along with the immense valuation of Tesla as well as Elon Musk’s net worth. This acts as a great segue into the focus of today’s show: a so-called good company has high historical returns, strong earnings growth, strong forecasted earnings growth, and high prices. But just because the good companies have done well historically, this does not mean they will continue to be a good investment. In fact, there is a premium that says that higher-priced stocks earn lower returns than lower-priced stocks and value stocks. We unpack several papers that explore the concept that it is the lesser-known companies that tend to have better returns. We also get into how growth extrapolation, the skewness effect, and the big market delusion plays into the good company is a good investment fallacy. Our discussion concludes with the idea that investors are better off paying attention to expected returns rather than falling victim to extrapolation errors. Tune in today!

* https://rationalreminder.ca/podcast/174

dtech• 2 years ago

You're making the classic mistake that thinking a company makes a good product they're a good stock. If the stock has sky high expectations and the company does "only" very good, the stock might still fall.

freedomben14• 2 years ago

You're making the classic mistake that thinking a company makes a good product they're a good stock. If the stock has sky high expectations and the company does "only" very good, the stock might still fall.

Disagree with the first sentence, fully agree with the last. My read/feel on expectations right now is that Apple has generally lower expectations from institutional investors than what is warranted, certainly from Berkshire. Berkshire certainly isn't bailing, but there's clear indications that Apple isn't expected to be the rocket ship they previously thought it would be.

beambot• 2 years ago

Everything you say can (and probably is) true, but the company can still be vasstly overvalued on a P/E basis.

light_triad• 2 years ago

Indeed great moat and brand loyalty but a big question is how much can they grow now that they’re so massive

coliveira• 2 years ago

Yes, in the US and Europe. But Apple lost China and many parts of the world don't have the same loyalty to them. This may put Apple's profits in jeopardy in the medium to long term.

freedomben14• 2 years ago

Fair point, although from what I've heard they are experiencing great numbers in China, including achieving that important "status symbol" or "luxury brand" status that has helped make them so formidable in the US.

I also think the US and EU markets are so big that they've got time (and plenty of money) to figure out Asia and Africa.

RandomThoughts3• 2 years ago

To be fair their position in Europe is not particularly stellar either. It’s good but can’t be compared to their US stronghold.

mschuster91• 2 years ago

I think the bears are vastly underestimating the size and power of the moat (or garden wall) that Apple has built.

Apple's size/moat is one thing. That will last them for years to come, in no small part because the competition is dog shit (Windows is an ad ridden hellhole that constantly enshittifies itself with each generation, and Linux, well, every year has been "the year of Linux on desktop" for like two decades now?).

But there isn't much potential for true growth in their existing product categories either, and this is IMHO why Buffett is dropping such a large stake. Western markets are pretty much saturated, India/China's population parts that can afford Apple stuff just as well, and for other markets Apple is just too high a price point. Making that worse is that the Apple Vision, the first entirely new class of product in years, has utterly and miserably flopped.

Seeing a heavy Apple user try switching to Linux on their laptop was a real eye opener for me.

Depends which part of macOS they're mostly using... if it's mostly a web browser, Terminal and IntelliJ, VSCode or whatever, switching is relatively painless. The challenge is hardware support, and a bunch of stuff isn't supported by Asahi Linux.

freedomben14• 2 years ago

Depends which part of macOS they're mostly using... if it's mostly a web browser, Terminal and IntelliJ, VSCode or whatever, switching is relatively painless. The challenge is hardware support, and a bunch of stuff isn't supported by Asahi Linux.

For the person I saw, it wasn't the OS itself really that was the problem. For him it was the integration with his iPhone, watch, his magic trackpad, Home Pods, and some apps and other digital goods that he had purchased that became hard to consume. There weren't any hard deal breakers, but so many thousands of paper cuts that it became overwhelming (which as I understand it, is exactly the strategy Apple is pursuing).

wklauss• 2 years ago

I don't think Berkshire is particularly bearish on Apple. It's just they made good money out of the investment and it's a good time to cash out and keep cash for future buys. The fact that they kept half of it tells you they still consider it a solid position but if there's a downturn ahead, having cash on hand to buy other companies makes sense.

allthing• 2 years ago

Exactly, this is a rebalancing since Apple because a huge portion of Berkshire's portfolio due to it's growth. They became over 40% of Berkshire's holdings, too much for them to be comfortable with.

mixmastamyk2• 2 years ago

In ~2009 Apple lost 50% of its value—despite previously introducing a world changing product and having billions in the bank. Macro trends affect everyone and premium stocks often get hit hardest.

freedomben14• 2 years ago

Yes, but that describes most other stocks too. 2008/2009 was a general blood bath. No matter where your money was (in the stock market) it took a beating.

layer83• 2 years ago

Seeing a heavy Apple user try switching to Linux on their laptop was a real eye opener for me.

Mac sales account for only around 8% of Apple’s revenue.

freedomben14• 2 years ago

It's not just Macs though. It's the iPhone, Apple Watch, EarPods, Magic Trackpad, Home Pods, and purchased Mac apps and other digital goods that make switching to a Linux laptop especially painful.

samstave• 2 years ago

Serious Question: What happens to stocks in wartime? And in the next BigWar - a large % of it will be comms related. What happens to telco/handset-providers stocks if they become useless during major warfare?

zcw100• 2 years ago

Seeing a heavy Apple user try switching to Linux on their laptop was a real eye opener for me.

I’ve been using Linux since 1996 and Linux on the desktop has been and continues to be a disaster. It’s only good for two things, opening a terminal or a web browser.

majewsky• 2 years ago

"Opening a web browser" is nearly sufficient for most users though. So much so that Google based an entire OS around it.

ryandvm• 2 years ago

Agreed. Apple has a lock on consumers similar to Microsoft in the business market. They may or may not be producing the best products, but switching ecosystems is phenomenally painful.

jsnell• 2 years ago

Discussed yesterday: https://news.ycombinator.com/item?id=41147381

johnwheeler3• 2 years ago

It’s pretty simple. Can he get ~5% risk free from Uncle Sam or more than that in a year on the apple position. $14 billion a year you don’t have to pay any state taxes on. For as long as he decides to hold it. That’s like the net income of a bank like Wells Fargo.

BoredPositron• 2 years ago

Yeah it was over for me when he went on that Watson will change the world rant after the jeopardy stunt.

johnwheeler3• 2 years ago

Why did this get a downvote lol. It’s true.

brcmthrowaway• 2 years ago

How doesnt he pay tax?

johnwheeler3• 2 years ago

You don’t pay state taxes on treasuries

dangrossman• 2 years ago

Berkshire's insurance float value is on the same order of magnitude. They underwrite both property insurance and cyber insurance. That's a scary business to be in right now. Hurricanes, thunderstorms, tornados, cyber attacks have all become devastatingly more damaging recently. Maybe that's a good reason to stockpile cash right now regardless of their outlook on any particular stock.

nemonemo• 2 years ago

Can't they simply charge more premium and pay for the reinsurance? Uncertainty is where the premium comes from, and I would think insurance business in BRK should thrive with it.

ikekkdcjkfke• 2 years ago

Good, hopefully this lifts some of pressure to monetize us

seizethecheese2• 2 years ago

Precisely the opposite. If Apple stock drops, there will be sudden, intense pressure to monetize.

loceng2• 2 years ago

Might this have anything to do with Apple starting to reposition production outside of China?

paganel2• 2 years ago

Any news sources on that? Honestly asking because I've missed it.

relaxing• 2 years ago

https://www.google.com/search?q=Apple+starting+to+reposition...

rvz• 2 years ago

Warren Buffet taking giant profits and dumping half of their AAPL stock at the top of market prices is really another reason to be bearish on this AI hype which hasn't materialised to anything profitable for 98% of AI startups and neither has it convinced Wall St that the massive operational costs were worth it. (The 2% is OpenAI, Anthropic and the other >$15B AI startups.)

This just means that we should be getting a short term market correction. The ones that have benefited off of the hype are the Big Tech incumbents that will be just fine and those who dumped their skyrocketing shares on retail, which includes the folks at Nvidia.

At this time, some stocks and most AI startup valuations are extremely inflated and must correct and go down.

freedomben14• 2 years ago

Do you think this is resulting from AI hype? Buffett is usually so macroscopic that I would be inclined to think this is an overall feeling, not one related to AI. But, if you think the tech sector is going to experience a big AI deflation, that could be something I suppose. Interesting to consider.

fragmede• 2 years ago

I guess the question is if someone's shown him ChatGPT yet.

IshKebab3• 2 years ago

Is Anthropic even making money? Seems to me the only current winners in the AI game are OpenAI and established giants like Google.

Also I don't think you can dismiss AI as pure hype like you can with e.g. web3. Clearly there have been and continue to be amazing and useful advances.

notyourwork• 2 years ago

AI has been a market buzz word for many years.

ChrisArchitect• 2 years ago

[dupe]

More discussion: https://news.ycombinator.com/item?id=41147381

Kalanos2• 2 years ago

Apple bet big on proprietary ARM chips, but now Qualcomm has commoditized this space.

Apple followed Meta into VR/AR without a killer app.

IshKebab3• 2 years ago

I don't think Apple "bet big" on them, they just made some very good chips because that's obviously good for their business. They didn't stake their business on nobody else also doing that.

VR/MR I'll give you though. The weird thing there is that games are clearly the only (non-porn) application for VR that has any kind of real-world appeal, and Apple went in completely the opposite direction.

Reubend2• 2 years ago

Apple bet big on proprietary ARM chips, but now Qualcomm has commoditized this space.

In my opinion, their bet on proprietary ARM chips was a success. They're a full generation ahead of Qualcomm, and they were able to successfully market their laptops based on superior battery life far before the Windows market caught up (which they're just starting to do now). That bought them a big lead.

But more importantly, they now have in house experience designing chips that will be an advantage if they want to innovate in new categories.

Kalanos2• 2 years ago

So what? They could have payed someone to do that.

They should focus on the user experience, not chips.

For example, they let Siri languish for decades. Apple was glued to the hands/eyes of consumers, but neglected to train an AI/ gather meaningful data to improve their product.

Now they are playing catch up with Apple Intelligence.

layer83• 2 years ago

At Buffett’s age, I would shift more to cash as well. ;)

hamasho• 2 years ago

I bet in a few years the CEO of Apple will be replaced by someone who's only interested in short-term gains, and the stock price may increase even higher at a sharp rate for like a decade or two. Then it becomes like Boeing or Intel; everyone hates it or it's not relevant anymore.

If I win this bet, I'll gain small satisfaction, and my all-index-fund portfolio will be, I don't know, just fine?

edit: typo

more_corn• 2 years ago

Be greedy when everyone else is cautious and be cautious when everyone else is greedy. When the bubble pops buy the good deals and wait for the recovery.

enos_feedler2• 2 years ago

Everyone here points to the high P/E ratio as the reason to sell. That is simply the reason to sell NOW. The reason it's being sold is he is obviously less bullish on the company. It doesn't take much to understand why. The thing that led to Apple's growth as a company and a stock is something called the iPhone. The thing that drove sales of the iPhone was the fact they were not just getting better, they were getting _different_. More cameras. Different kinds of sensors. Now they are just getting better. And less better each generation. Benedict Evans would call this the top of the "S" curve. It matters when selling someone a new phone in a new box is the main thing that generates your profits.

You can be a great company with great leadership and great products. You can't defy the laws of the "S" curve and market saturation. It doesn't matter how good you are. This is why Buffett and Co. are unloading. I wouldn't be surprised if it all gets sold by the end of the year.

EDIT: I called this sale two weeks ago in a tweet:

https://x.com/jkingyens/status/1813214574436303114

jti107• 2 years ago

its been pretty much the same iphone for last 5 years...the only new innovation have been satellite texting messages, 120 hz screens and improved camera/cpu. yet Apple has continued to do well...i think your example of S curve and market saturation is fine but Apple has an entire ecosystem and is catering to luxury and high end market so the same rules dont apply (see LVMH as an example in luxury goods). they sell phones, tablets, computers, high end audio, watches, services and all these things just work well together. no other company on the planet comes close...other than maybe google.

enos_feedler2• 2 years ago

While that is true in hindsight, we had different emotions when the phones 3 and 4 years ago actually came out. We were on autopilot because of all the innovation that came before it. We overshoot and then come back to reality. Also, I actually think Covid also masked a lot of deceleration due to the S curve topping out because it pulled in a lot of future demand. There are multiple reasons why the market demand is not going to line up perfectly with the actual products that launch each year.

fasttalk1932• 2 years ago

I wonder if this is less about Apple and more about beating the market. Are they seeing a big correction coming?

Berkshire halves Apple stake, boosts cash to $277B as it gets 'defensive'

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