Warren Buffett is Selling His Largest Stock.

Have you or your investment manager's views of the economics of Apple's business or its attractiveness as an investment changed since Berkshire first invested in 2016?

Here we go, everyone! Buffett is back, making headlines, and this was a big one: Warren Buffett is selling chunks of Apple. I'm actually here in Omaha as we speak, hence the odd background. I was very lucky to actually attend the Berkshire Hathaway shareholder meeting in person again this year. I'm always extremely grateful to come here and listen to Warren and also to meet all of you guys. I honestly, I met so many of you guys; it was insane! So I really appreciate it. Thanks for coming up and saying hi.

Let's keep the Berkshire bananza going! I'll also quickly note that I've decided to do a big Berkshire sale over on New Money Education. There's a lot of discussion about learning and giving and just being kind in the meeting this year, so what the hell? I decided to do a 50% off discount for you guys with the coupon code BURKSHIRE24.

I know a lot of you guys will say, "Well, if you want to give, why not do 100% off?" I will be honest with you guys: I do still need to generate money from these courses to cover our business expenses so that we can keep making these high-quality YouTube videos for free. But hopefully, this might still sound like a cool offer for some of you guys that were maybe already looking at the courses and wanting to learn the full Warren Buffett style investing approach.

And if you've never heard of New Money Education before, most likely the course you will be looking for will be Introduction to Stock Analysis, which is over 6 hours long and goes through the full Buffett approach, including analyzing financial statements, stress testing MOEs and management teams, and also includes three comprehensive valuation techniques.

But anyway, back to it! I'm excited to be here, and we have huge news this time around: Buffett is selling down Apple, and it is actually quite significant. Sometimes he trims a few percentage points here and there, but this time it was actually quite a big chunk.

So leading into this quarter, Apple was his largest stock by a very long way. In fact, it was over 50% of his stock portfolio, and now he's just sold 116 million Apple shares in total, reducing based stock by 13%. This is what he had to say about it: "Just given what you mentioned, there was some news that came out in the 10Q this morning. It shows that Berkshire sold another 115 million shares of Apple in this last quarter. That's Berkshire's largest holding. Have your or your investment manager views of the economics of Apple's business or its attractiveness as an investment changed since Berkshire first invested in 2016?"

"No, I would; but we have sold shares. I would say that at the end of the year, I would think it extremely likely that Apple is the largest common stock holding we have."

And this, to me, is really interesting because honestly, it brings up more questions than what we get in answers. He's selling 133% of Apple but also assures investors that their largest position will continue to be Apple out into the future. But here's the thing: Warren Buffett has said many, many times in the past that he is not in the business of trimming positions. Sometimes they do it in a small way for tax reasons and whatnot, but he certainly doesn't go around trimming positions without an underlying reason.

"Charlie and I looked at common stocks, or marketable equities, or the things that people love to look at as being businesses. When we own a Dairy Queen or we own whatever it may be, we look at that as a business. And when we own Coca-Cola or American Express or Apple, we look at that as a business. We have no way, no attempt made to predict markets; we have no attempt made to pick stocks."

But if he doesn't make changes to his portfolio based on market conditions or outside factors, as he just noted, isn't he therefore implying that the 133% reduction in Apple must have been due to something related to the business?

Well, luckily, there is more to the story, and Buffett does explain his reasoning. But just before we get into that, I would just like to let you guys know that actually the whole reason that myself and HH were able to come to Omaha this year is thanks to a sponsor, and that business is Morning Brew. So I would honestly really appreciate it if you would click the link in the pinned comment and go and check them out.

If you don't know anything about Morning Brew, they write a daily newsletter that I've been reading literally for years now. And the reason I like their stuff is because every day they cover the big news in investing, business, and tech, but they don't waffle on. It's short, it's to the point, it's actually funny as well. So if you're a super busy person like me, it's definitely worth subscribing to stay up to date with what's going on, and it literally takes 10 seconds. And the best thing is, well, it's free! It's a free newsletter, so it's a really good quality resource.

As you can see, yesterday they were even talking about what was then the upcoming Berkshire meeting. So please, if you could, I would really appreciate it if you would support this trip that we're on by signing up to Morning Brew. I would really, really appreciate it, and also a big thanks to Morning Brew for being the sponsor of our trip this year and making all of this happen for us.

So anyway, back to Warren! What are you doing, you cryptic 93-year-old? Well, there are actually a few reasons that he kind of alluded to later in the meeting as to explanations of why he actually decided to sell this big chunk of Apple stock.

"And we own Apple, which is an even better business, and we will own — unless something really extraordinary happens — we will own Apple and American Express and Coca-Cola when Greg takes over this place. But I don't mind at all under current conditions."

"I think, when I look at the alternative of what's available in the equity markets and I look at the composition of what's going on in the world, we find it quite attractive."

Yes, you heard it here, folks! I promise there is no AI voice cleaning in that clip. Warren Buffett himself has said that he does not mind having more cash on hand at this moment in time with everything that's going on in the world. More cash!

In the 10Q they released earlier that day, Berkshire noted that they had a record cash balance of $18.99 billion for Q1. $189 billion of cash on the sidelines; that's literally the market cap of GM, FedEx, and Starbucks combined! This is pretty crazy, and there was a lot of speculation stemming from this that Buffett kind of indirectly just revealed that he doesn't think the market is going to hold up all that well over the next little while.

Now, of course, Buffett would never confirm or deny that for sure, but from what he said before, that definitely seems to make sense. He said that he did this because he didn't mind building up the cash horde at this point because of the environment that's taking place — I guess the economic environment, the stock outlook. I mean, I tried to pull a little more out of him later with another question, and he didn't bite on it.

"But what are you going to do with all that cash? Why do you need all that cash?" He says he can't find good places to put it, and that makes you wonder if he thinks the entire market's overvalued.

So there is a lot of speculation that Buffett sees some stormy clouds ahead. But interestingly, being there at the meeting and listening to the whole thing, it did actually give me a little bit more insight into Buffett's probable motivations for this move. And on reflection, I think there are actually three points to this:

1. Realizing profits to avoid future potentially higher capital gains tax.
2. Keeping more money on the sidelines in case of large insurance losses from increased and more severe weather events.
3. The fact that he's actually okay with cash; he doesn't really fear sitting in cash in this environment, especially with treasury yields at roughly 5.5%.

But by far the point he spoke to most directly at the meeting was this idea of actually realizing some gains now in anticipation for a big hike in the corporate tax rate.

"One thing that may surprise you: We don't mind paying taxes at Berkshire. 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. 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 that they've decreed currently is 21%. And I would say with the present fiscal policies, I think that something has to give, and I think that higher taxes are quite likely. And the government wants to take a greater share of your income, or our earnings; 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 larger percentage of what we earn, and we'll pay it."

"I would really hope with all of America's done for all of you shouldn't bother you that we do it. And if I'm doing it at 21% this year and we're doing it at a higher percentage later on, I don't think you'll actually mind the fact that we sold the Apple this year."

Another quote from Buffett a little earlier in the meeting was, "The market isn't there to instruct you but to serve you." And I think that quote cements what Buffett is doing here with Apple at near all-time highs. Warren is actually preemptively locking in some of his gains now at high valuations at the 21% tax rate now because he thinks the corporate tax rate will go up a lot in the future whenever the government actually looks to tackle this enormous debt pile.

It's a really interesting bet because he's essentially thinking that converting that Apple stock into cash now and avoiding potentially higher tax rates, combined with the current return of short-term treasuries, which is where that cash will likely land — well, those two factors together will somehow outperform Apple stock across the next little while. It's a really, really interesting one.

I don't know if I'd personally make that bet, but it shows that Buffett isn't seeing a great time ahead for the corporate taxpayer or for the stock market. But beyond that, the second point behind Buffett being so happy with locking in profits and going back to cash is his opinion that Berkshire really needs to shore up the bank account to protect shareholders from potential future insurance losses.

And I know this sounds crazy, but it's actually true. I don't have a great clip of this for you guys, but during the meeting, Buffett made a couple of references to the increased frequency of extreme weather events and the need for their insurance business to have a larger sum of money just in cash or short-term treasuries right now so that they always protect Berkshire from, say, being wiped out in one fell swoop.

Because that's the thing to remember when reading these CNBC articles talking about how Buffett has $189 billion on the sidelines: he honestly doesn't have that much to invest. He said in the past that a very large portion of that needs to stay untouchable in case of insurance losses.

So the investable funds from that pile are actually quite a bit lower. Yes, he still makes very sizable investments; there's tens and tens of billion dollars that could be invested, but it isn't quite $189 billion.

So that kind of leads us to the third and final reason Buffett sold that Apple block, and the reason is simply that with short-term U.S. Treasury bonds actually paying a pretty decent return, it's not actually the worst idea to have a bit of money on the sidelines reaping that risk-free return.

Berkshire isn't finding anything juicy in the stock market right now, but rolling cash through U.S. treasuries? It ain't that bad.

You're sitting on $168 billion of cash, which you told us today is now more than $182 billion. His questions are, one: What is Buffett waiting for? And two: Why not at least deploy some of it?

Well, I think that's pretty easy to answer. I don't think anybody sitting at this table has any idea of how to use it effectively, and therefore we don't use it now at 5.4%. But we wouldn't use it if it was at 1%.

"Don't tell the Federal Reserve that. But you have to think of it as what would he put new money into that gets over that hurdle of 5%, do 5.4%? Yeah, you got to get more than 5% that you can earn in treasuries in a very safe environment."

At the end of the day, Becky summarized Buffett's predicament quite well: there's not that much on offer in the stock market, and treasuries are paying unlike a very low-interest rate environment. Sitting on cash doesn't hurt so much right now, and Buffett, being the ultra-patient investor that he is, feels very comfortable turning that Apple stock into cash and just sitting on it.

"We only swing at pitches we like, and it's just that things aren't attractive, and there's certain ways that can change, and we'll see whether they do."

So that, my friends, is why Warren Buffett sold a big chunk of Apple stock. I'd love to hear what you guys think about it down in the comments below. And if you did want to get in on New Money Education and support the channel as well, remember the code BURKSHIRE24. That is a temporary code that we will be deleting in a few days from now, but take full advantage if you would like.

But apart from that, guys, thanks very much always for the support, and I'll see you guys in the next one. [Music] [Music]