Why Buffett Sold Apple Shares: The Simple Truth
Another Reason to Not Follow Social Media Hysteria
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Dear investor,
today’s article is a short reminder on why you should ignore any media opinions and news regarding the stock market.
On August the 5th the time had come. The soothsayers of Wall Street predicted the great downfall of the markets once again (of course after stocks had fallen a few percent).
One of the reasons for this panic that caught my eye was Warren Buffett's sale of some of his Apple AAPL 0.00%↑ stocks. The stake reduction pushed Berkshire's cash position to a record high:
The downfall was near. What does Buffett know? Does he have secret insider information that we don't know about? Is he preparing for a recession?
Is Apple's future uncertain? Should we do the same and sell our shares? Because the Oracle of Omaha must have had a reason to drastically reduce his largest position!
Well, Buffett had a reason. A sensible one, in fact. Let's hear what he himself has to say about it:
“We don’t mind paying taxes at Berkshire and we are paying a 21% federal rate on the gains we’re taking in Apple. And that rate was 35% not that long ago and it’s been 52% in the past when I’ve been operating. The federal government owns a part of the earnings of the business we make. They don’t own the assets but they own a percentage of the earnings and they can change that percentage any year and the percentage they’ve decreed currently is 21% and I would say with the present fiscal policies something has to give and I think that higher taxes are quite likely. If the government wants to take a greater share your income or mine or Berkshire they can do it and they may decide that someday they don’t want the fiscal deficit to be this large because that has some important consequences and they may not want to decrease spending a lot and they may decide they’ll take a large percentage of what we earn and we’ll pay it.”
- Warren Buffett -
There you have it. Buffett expects sooner or later a higher tax rate.
That's why he's already taking some profits so that he won't be faced with a bigger tax bill after the election. His opinion on apple remains unchanged, as he said multiple times.
Every year thousands of investors travel to Omaha to attend Berkshire's annual meeting, including numerous financial journalists. What surprises me, however, is what are they doing during the conference?
It can't be listening, because Warren Buffett has said several times that Berkshire's cash position does not indicate whether he expects a bull or bear market, but is related to the fact that due to Berkshire's size, the choice of good investments is limited.
“Holding cash is uncomfortable, but not as uncomfortable as doing something stupid.”
- Warren Buffett -
Buffett cannot simply reduce his cash holdings by half because that would require a larger stake or an acquisition. And there are not that many companies available because Berkshire alone has a market capitalization of almost a trillion:
By the way, here is a reminder to all readers who still listen to the market prophets. Just as quickly as the panic appeared, it disappeared again, as can be seen from the share price performance of the largest companies since the panic lows from the 5th of August:
Nvidia NVDA 0.00%↑ : +43%
Meta META 0.00%↑ : +17%
Netflix NFLX 0.00%↑ : +17%
Amazon AMZN 0.00%↑ : +17%
Apple AAPL 0.00%↑ : +16%
Microsoft MSFT 0.00%↑ : +8%
Google GOOGL 0.00%↑ : +7%
It almost seems as one should do the opposite of what market pundits say, especially if you take a look history (the best source for investing lessons):
Until the next issue. 👋
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Disclaimer: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from my research. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.