Why Did Buffett Sell Apple? (AAPL)

He learned from Coca-Cola. Will you?

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We discussed a bunch of earnings on last week’s Power Hour as well as the Andrew Left criminal accusations. Links above.

For this week’s newsletter, I want to talk about Buffett.

He has sold half his Apple position:

The Omaha-based conglomerate disclosed in its earnings filing that its holding in the iPhone maker was valued at $84.2 billion at the end of the second quarter, suggesting that the Oracle of Omaha offloaded a little more than 49% of the tech stake. Even after the selling Apple remains the largest stock stake by far for Berkshire.

The Apple share sale comes amid a broader pattern of selling by Buffett in the second quarter as Berkshire unloaded more than $75 billion in equities in the period, raising the conglomerate’s cash fortress to a record $277 billion.

Wow. After he said it was a “never sell” too.

To be fair, the stock is still his largest position. However, selling tens of billions of a stock is quite the signal. He would rather have $277 billion in cash sitting earning a guaranteed return of ~5% over Apple.

Why did he sell? Well, if you know Buffett, it is not because he “predicted” the late July to early August market sell-off.

I think he learned his lesson from Coca-Cola. In the 90’s market bubble, Coca-Cola became a huge winner for Berkshire Hathaway, was a giant % of the stock portfolio, and traded at 50x earnings.

He lamented later that it was a mistake to not trim this position:

In the video, he says over and over that Apple Coca-Cola is a wonderful business. However, in 1998 it was only ever going to be a slow grower and was extremely overvalued at 50x earnings. He says it was a mistake to hold Coca-Cola at what were stupid prices.

Sound familiar?

I believe he has learned from his Coca-Cola mistake with Apple. Like Coca-Cola in 1998, Apple today is guaranteed to be a slower grower and trades at a high earnings multiple. Even though it is a “wonderful business” the stock makes little sense here.

Which is why Buffett would rather sell his stake to a much smaller % of Berkshire Hathaway’s assets even when he already had $200 billion in cash.

Think about that.

He is telling you that Apple at over 30x earnings is worse than short-term treasury bills.

Did you listen? No?

Brett

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