Why is Warren Buffett selling so much Apple stock?
In a previous Member Q&A, “What is Warren Buffett telling stock and ETF investors with his large cash hoard?”, we discussed how the legendary billionaire investor had been selling stocks and increasing Berkshire Hathaway’s cash holdings to a record $157.2 billion in the third quarter of 2023.
Fast forward to the third quarter of 2024 and Buffett has more than doubled Berkshire’s cash hoard over the past year to $325.2 billion. As this chart shows, Berkshire’s cash has increased 94% since the fourth quarter of 2023.
Berkshire sold $34.6 billion of stock in the third quarter, after selling $75.5 billion in the second quarter. As shown below, Berkshire has been a net seller of stocks during the entire rally since late 2022. Most of the stock sales were of Apple and Bank of America.
Berkshire now owns about $70 billion of Apple stock or 300 million shares. They sold 25% of their Apple stock last quarter and now own 70% less shares than they did in 2018. This is rather remarkable since Buffett has always talked about Apple being a core long-term holding. He has said that "Apple is probably the best business I know in the world” and "We don’t own it because we expect the stock to go up next year or the year after. We own it because we like the way they run the company and the way they think.” To underscore his long-term commitment to holding Apple, Buffett once said, "I don’t think of Apple as a stock. I think of it as our third business.”
If Buffett is really a “long-term holder” who doesn’t “time the market” and views Apple as their “third business”, why did he sell 70% of his Apple stock? His actions don’t quite fit with his words, do they?
In addition to dumping most of their Apple stock, Berkshire also sold 23% of their Bank of America stock last quarter. Berkshire has been the largest single shareholder of Bank of America. Perhaps the most telling fact of all is that Berkshire did not buy back any of its own stock in the third quarter. That is the first time they have not bought back stock in the past six years.
So yes, Buffett is selling lots of stock and hoarding lots of cash. To answer the question “why?”, let’s look at some facts that are probably worrying Buffett, as they are worrying us…but not most investors.
High Market Concentration And Valuation
Berkshire Hathaway is one of the ten largest stocks in the S&P 500, along with JP Morgan, Eli Lilly and seven mega-cap Tech stocks: Microsoft, Apple, NVIDIA, Alphabet (Google), Amazon, Broadcom and Meta (Facebook). As shown below, these ten stocks comprise 37% of the value of the S&P 500, which is the highest concentration of the largest 10 stocks since at least 1990. Narrow markets like this do not usually end well. Indeed, this concentration is even higher than at the stock market peaks of 2000 and 2020. That is probably why Buffett sold so much of one of these ten stocks (Apple) and didn’t buy any of another one (Berkshire) last quarter.
Buffett is famous for highlighting the ratio of total stock market capitalization to GDP as his favorite valuation metric for estimating the future long-term returns of the stock market. As this chart shows, the stock market is near all-time high valuation levels, even higher than at the 2000 market peak, after which the NASDAQ fell 80%. If there is one thing Buffett hates to see, it is very high valuations, which means that weak long-term returns are already baked into the cake.
Stubbornly High Inflation
Buffett is probably also worried about the aggressive Fed rate hikes and inverted yield curve of the past couple of years and the fact that, despite all of this, inflation remains stubbornly high.
Buffett and Fed Chair Jay “Transitory Inflation” Powell were likely happy to see that PCE inflation (green line) slowed from 2.3% in August to 2.1% in September, just slightly above the Fed’s 2% target, as shown below.
However, they were probably disappointed that Core PCE inflation ex volatile food and energy components (blue line) increased 2.7% last month, stalling about where it has been for the past five months. In addition, Median PCE (orange line) was 3.2%, stalling about where it has been for the past six months. That is more than 50% higher than the Fed’s target.
They were also probably disappointed to see Powell’s favorite inflation gauge, Supercore PCE inflation, increase 3.3% last month, stalling about where it has been for the past four months and similar to Median PCE, as this chart shows.
Investment Implications
Buffett was already a famous investor in the 1970s. He surely remembers that the “stagflationary” decade of the 1970s was the worst for investors since the 1930s. The combination of high valuations (implying subsequent poor returns) and high inflation is a deadly recipe for the stock market.
We think actions speak louder than words and Buffett’s actions this year speak volumes about his market outlook. Now is a good time to heed Buffett’s sage advice: “be fearful when others are greedy and be greedy when others are fearful”.
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