Renowned investor Warren Buffett, CEO of Berkshire Hathaway, has long touted Apple (NASDAQ: AAPL) as a stellar business, famously declaring it “a better business than any we own” at Berkshire Hathaway’s annual shareholder meeting in May of last year. This sentiment was underscored by Apple’s status as the largest holding in Berkshire’s portfolio, signaling Buffett’s unwavering confidence in the tech giant. However, despite Buffett’s glowing endorsement, Berkshire Hathaway disclosed the sale of nearly $2 billion worth of Apple shares towards the end of 2023, raising eyebrows among investors.
According to Berkshire Hathaway’s 13-F filing with the Securities and Exchange Commission, the conglomerate held 10 million fewer Apple shares at the close of the year compared to September figures. Yet, analysts caution against interpreting this move as a sign of Buffett’s waning enthusiasm for the tech titan. Instead, there’s a clear rationale behind Buffett’s decision to pare down Berkshire’s Apple holdings.
Buffett’s portfolio adjustments in 2023 extended beyond Apple, with Berkshire Hathaway selling a substantial $32.8 billion worth of stock throughout the year, while acquiring just $9.1 billion in new holdings. While there were various factors influencing these divestitures and exits, the potential tax implications of Buffett’s actions cannot be overlooked.
Berkshire Hathaway, like many investment firms, reports deferred income taxes on unrealized gains in its portfolio as a liability on its balance sheet. However, the actual payment of these taxes is deferred until shares are sold and gains realized. As of September’s end, Berkshire’s deferred tax liability stood at approximately $85 billion, with $207 billion in net unrealized gains and $5.4 billion in realized gains generated earlier in the year.
In the fourth quarter, Buffett continued to trim Berkshire’s holdings, including significant reductions in positions such as HP and Paramount Global. The sale of these underperforming stocks likely incurred substantial losses, which can be offset against gains from other sales—such as those from Apple—to mitigate tax obligations.
While Buffett’s decision to sell Apple shares may evoke memories of similar actions in previous years, it’s important to note his acknowledgment of potential missteps. During Berkshire’s 2021 annual meeting, Buffett conceded that selling Apple shares in the past may have been a mistake, echoing sentiments from Vice Chairman Charlie Munger. However, despite the possibility of repeating history, the recent sale of 10 million Apple shares represents only about 1% of Berkshire’s total position, suggesting a relatively minor adjustment.
Looking ahead, Buffett retains the option to reacquire Apple shares at potentially lower prices, particularly following recent fluctuations in the company’s stock value. With Apple shares currently trading at relatively attractive multiples and boasting a robust capital return program, Buffett’s ongoing bet on the tech giant underscores his confidence in its long-term prospects.
Ultimately, Buffett’s strategic portfolio maneuvers serve as a reminder to investors that selling a stock does not necessarily reflect a negative outlook on the company’s fundamentals. Rather, it may be part of a broader tax management strategy aimed at optimizing returns and managing liabilities. In the case of Apple, Buffett’s continued endorsement suggests a belief in its enduring value and potential for future growth.
