There was news that Berkshire Hathaway (BRK.B, hereafter Berkshire), a strong ally of Apple, sold stocks on a large scale. Not only was Berkshire the company that had held Apple unwaveringly despite numerous growth issues, but the news was delivered at a time when the global stock market was seriously shaken, so the repercussions were very strong. Therefore, in this article, we will examine Berkshire's stock sale and Apple's current status and outlook.
Valuation too high? Stagnant growth?
It is unknown exactly why it was sold. However, it is difficult to agree with the opinion that it is due to concerns about overvaluation. Of course, Apple's PER is over 30, which cannot be considered low, and is clearly a high figure even considering the historical average.
Source : Macrotrends
However, looking at the PER trend over the past five years, Apple's PER of 30 is not that surprising. Berkshire Additional purchases were made relatively recently in 2023..
Some say the sale is due to stagnant growth, but this is also a bit puzzling. It is true that Apple's growth is showing signs of stagnation. In fact, as of September 2022, Apple's sales have not recovered to their peak.
Source : Macrotrends
However, Buffett has expressed about Apple's iPhone, "A daily necessity that people are willing to pay $1500 for." This means that it is not a new challenge called “Buffett’s investment in technology stocks” but, as always, it is investing in the huge economic moat of the iPhone. Even in 2016, when Berkshire began investing in Apple, there was stagnation in sales growth in 2019. Modifiers such as “absence of innovation” were like labels that came only at the right time.
Nevertheless, Buffett has continued to purchase additional Apple, and its recent growth has been showing signs of stagnation At the 2023 shareholders' meeting, Buffett praised Apple as the world's best company..
Concerns about the overall economy
Perhaps Buffett's massive selling of Apple stock was due to concerns about the overall economy. Buffett has warned of uncertainty in the U.S. economy and high valuations of the stock market. According to Berkshire's recently released second quarter earnings report, Berkshire sold $77 billion worth of stock, including Apple, during the second quarter. [This amounts to 30% of the total portfolio.. This indicates that Berkshire is securing cash in preparation for economic uncertainty. Considering that Berkshire's usual cash proportion is around 15%, the recent cash securing is at a very unusual level.
Tax rate increases and fiscal deficit
Buffett also predicted that a tax rate increase would be inevitable because the U.S. fiscal deficit is so large. This may have a negative impact on the company's net profit in the long term. Therefore, Buffett appears to have adopted a strategy to reduce the tax burden and secure cash by selling some stocks before the tax rate increase. This means reducing exposure to overvalued stocks, especially Apple.
Selling of bank stocks and market caution
Buffett has continued to invest even when there were many concerns about banking stocks since 2011, In particular, he showed strong trust in Moynihan, CEO of BoA..
Berkshire is selling not only Apple but also bank stocks such as Bank of America. BoA is the second-largest stock in Berkshire's portfolio, following Apple. Berkshire sold BoA Selling for 12 consecutive days (as of 8/2), a total of $3.8 billion was sold.. This is the first time Berkshire has sold BoA since 2019..
Apple and BoA are stocks that Buffett evaluated positively until relatively recently, so in addition to the overvaluation that is talked about in the public and the tax issues that Buffett himself revealed, he appears to be showing caution about the stock market. Coincidentally, the two stocks above are the ones in Buffett's portfolio that fluctuate relatively significantly depending on the economy.
conclusion
Buffett's selling of specific stocks appears to be a reduction in risk due to economic fluctuations or recession, rather than a change in perspective depending on the stock. Personally, I don't think there will be a recession within a year. I believe that the sensitivity to this or that index has become extremely high due to the high stock price level of the AI stock group. As if to disprove this, even if the law of Siam, PMI, etc. are greatly shaken, things that are refuted within a few days continue to happen.
I'm not claiming that Buffett is wrong. There are various speculations about this unusual move, but it may also be purely due to tax issues that Berkshire directly revealed. Also, even if an economic downturn is predicted, considering Berkshire's huge portfolio, it may still be a minimal hedging operation against a small possibility in the distant future.
The hedging timing and size of a Berkshire-sized account and an ordinary investor's account may not be the same. Signs of warning and signs of relief are being mixed together like crazy. In times like these, investors with small seeds should pay attention to each signal and respond closely to it, using it as an opportunity to protect and grow.
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