In investing, Warren Buffett and Charlie Munger are household names, synonymous with success and financial wisdom. But even the best can sometimes have doubts, as evident during Berkshire Hathaway’s 2021 annual meeting.
Buffett, often regarded as one of the greatest investors of all time, made headlines when he decided to sell some of Berkshire Hathaway’s Apple shares despite them being described as Berkshire’s “fourth jewel” alongside their insurance operations, BNSF Railway and the Berkshire Hathaway Energy subsidiary Buffett chose to reduce their stake.
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This decision confused many people, including a shareholder from Switzerland who asked why Buffett would sell Apple shares if the company was so important to Berkshire’s portfolio.
Why Did Buffett Sell?
Buffett explained that Berkshire owns 5.3% of Apple, a stake that increased due to share buybacks by both Berkshire and Apple. This strategy allowed Berkshire to increase its company share without spending more money.
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He elaborated on Apple’s extraordinary business model, its massive fan base, and the “fantastic manager” at its helm, Tim Cook. Buffett praised Cook by saying, “He's handled that business so well … he couldn't do what Steve Jobs obviously could do in terms of creation, but I don't think Steve Jobs could do what Tim Cook has done in many respects.”
However, despite all the praise for Apple, Buffett admitted to selling some shares, which he later regretted. In his words, “That was probably a mistake.”
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Charlie Munger's Input
Charlie’s way of pointing out mistakes is less dramatic but no less effective. According to Buffett, “Charlie, in his usual low-key way, let me know that [he] thought it was a mistake too.”
He continued talking to Munger on stage, “I could only do so many things that I can get away with Charlie. I used them up between Costco and Apple … and suddenly, he probably very likely was right in both circumstances.”
Buffett’s choice to sell some of Apple’s shares might seem surprising, especially since he really admires the brand. He likened the value of Apple products to that of cars, suggesting that some people might even choose their Apple devices over their vehicles. “You know, a car costs $35,000, and I'm sure with some people if you ask them whether they had to give up their Apple or their car … who knows what they’d do,” he quipped, reflecting the deep loyalty of Apple users.
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Buffett’s 2024 Apple Stock Sale: Another Mistake?
At the beginning of August 2024, Buffett sold a big chunk of Berkshire Hathaway’s Apple shares, cutting their investment in half. Berkshire sold off $76 billion worth of stocks, making a massive after-tax profit of $47.2 billion and boosting Berkshire's cash reserves to an all-time high of $277 billion.
Although this is probably very far from a mistake, it also makes one wonder if they might be missing out on the long-term value of holding onto the stock. Naturally, Apple’s stock took a hit after the fact but remains a key part of many investment portfolios because of its strong market position.
The decision to sell could be seen as contradictory to the confidence he expressed in the company’s future prospects at its annual meeting just a couple of months ago, when he said, "Unless something dramatically happens that really changes capital allocation strategy, we will have Apple as our largest investment."
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