Warren Buffett Just Sold Apple Stocks: Should You?

Warren Buffett is without a doubt one of the greatest investors of our time. The Oracle of Omaha has amassed a fortune of over $ 80 billion, placing it among the 10 richest people in the world.

His company, Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB), is a massive conglomerate, with wholly owned subsidiaries in a wide range of industries providing significantly more revenue than its “core” insurance business. And famously, he has an impressive portfolio of stocks that, as of December 31, were worth over $ 281 billion. This portfolio has not been a small factor in helping Berkshire stock achieve an impressive 20% annualized return since 1965, nearly double the S&P 50010.2% annualized return.

Some investors may have been surprised when Buffett, opposed to the tech sector, added Apple (NASDAQ: AAPL) stock to his farms about five years ago. Now, they may be just as surprised to learn that he recently sold 57 million shares of this stock. Given Buffett’s track record, cautious investors should ask themselves: is it time to sell Apple?

Don’t bet against Apple

Apple is one of the biggest turnaround stories in the business world. After its inception in 1976, its first desktop models revolutionized the personal computing industry, helping the company claim an early lead over IBM and Microsoft. But its financial performance and social relevance declined after co-founder Steve Jobs left in 1985, and the company was on the verge of bankruptcy before its return in 1997.

24 years later – thanks to innovations like the iMac, iPod, iPhone, iPad, etc. – and today, Apple is one of the largest companies in the world, with a market capitalization of over $ 2 trillion. In addition, it ranks second in the global market for operating systems for smartphones and desktops, and the iPad is the world’s leading tablet.

Most importantly, Apple is still an innovative and adaptable company. In recent years, it has put more and more emphasis on services like digital payments and subscription products (Apple TV +, Apple Arcade, Apple Music, etc.). This strategy allows the company to further monetize its massive user base. As of last quarter, there were over 1.65 billion active Apple devices in the hands of customers.

On the physical product front, I think Apple still has a few tricks up its sleeve. He’s worked on various augmented and virtual reality (AR / VR) projects, and rumor has it that his first AR and VR headsets could be ready to launch by this year’s holiday quarter. He is also said to be designing an electric vehicle. Each of these efforts could lead to major new market opportunities for the tech giant.

Also consider Apple’s strong financial performance over the past decade. Few companies have managed to increase their income or free cash flow so quickly and consistently.

Source: Apple SEC Records. CAGR: compound annual growth rate. Note: The first quarter of 2021 ended on December 31, 2020.

Finally, its return on invested capital (ROIC) was 34% in its last fiscal quarter, meaning the company made $ 0.34 for every dollar invested in its business. In comparison, the return on investment for the S&P 500 as a whole was 7% in November 2020. This means that Apple uses capital much more efficiently than the average business – proof of a well-run business.

Why did Buffett sell Apple?

In Buffett’s 1988 letter to shareholders, he said: “When we own portions of exceptional businesses with exceptional management, our preferred holding period is eternal.” I think Apple ticks those two boxes, so why did Buffet sell?

While I can’t say for sure, one possibility is that Berkshire’s stake in Apple had grown so large that Buffett was uncomfortable. Prior to the recent sale, Apple accounted for almost 48% of the value of Berkshire’s stock portfolio. This level of concentration carries significant risk, and Buffett may have found it prudent to reduce the position.

Either way, I don’t think Buffett’s decision should worry investors in the slightest. Berkshire still owns 887 million Apple shares, which are now worth more than $ 117 billion. For two even more compelling statistics, Buffett owns more than 5% of Apple’s outstanding shares, and the investment still accounts for nearly 44% of Berkshire’s portfolio. This equates to a big vote of confidence from one of the world’s biggest investors.