Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) has sold over half of its Apple shares (NASDAQ:AAPL). Is Buffett bracing for a recession? Does he know something we don’t?
Warren Buffett has sold approximately 60 percent of his Apple shares. This revelation last week sent shockwaves through an already jittery financial market. Known as the Oracle of Omaha for his prescient market moves, Buffett’s drastic reduction of Berkshire Hathaway’s largest position seemed to underscore fears of an impending recession and escalating geopolitical tensions in the Middle East. For many market watchers, Buffett’s aggressive trimming of his Apple stake appeared to be a definitive sell signal.
It seemed as though Buffett was moving to liquidate his multibillion-dollar holdings before a potential economic downturn. Indeed, it appeared the Oracle was right: Buffett’s mass sell-off was reported on Saturday, and within hours, the Nasdaq experienced its most significant single-day point drop in history.
Giants like Apple and Nvidia (NASDAQ:NVDA) saw their shares plummet by double-digit percentages, and the cryptocurrency market lost half a trillion dollars in market capitalization within hours. Yet, the frenzy surrounding Buffett’s Apple sales might be more about panic than substance. A closer look at tech CEOs like Meta’s Mark Zuckerberg, Amazon’s Jeff Bezos, and Nvidia’s Jensen Huang reveals a more nuanced picture.
Has Warren Buffett Dumped the Market?
Firstly, it’s crucial to understand that Warren Buffett did not trigger or exacerbate the recent Apple stock declines through his sales. Berkshire Hathaway’s divestment of roughly 58 percent of its Apple shares had been detailed in the company’s quarterly report at the end of last week. Buffett had already been selling off shares in recent months. The news understandably unsettled investors, as it’s not trivial when even one of the most successful investors in history appears wary of current market conditions.
“Looking at the broader Berkshire picture and the macroeconomic data, it seems that Buffett is playing defense,” analyst Cathy Seifert told Reuters over the weekend. In simple terms, Buffett appears to find it too risky to maintain such a heavy investment in Apple stocks, preferring instead to bolster his cash reserves. This shift is most pronounced in Berkshire’s Apple holdings: Buffett’s firm sold 115 million shares in the first quarter, following disappointing iPhone sales. From April to June, another 400 million Apple shares were offloaded.
“Buffett seems to believe that publicly traded stocks are not offering attractive opportunities right now,” another analyst told Reuters. Thanks to these sales, Berkshire Hathaway now holds nearly $280 billion in cash—the largest cash reserve in the company’s history. Many market observers suspect this may be a strategic move to safeguard against a significant market downturn.
Buffett himself commented during the recent earnings presentation:
“We’d love to invest it all, but we won’t spend it until we find an opportunity that promises low risk and high returns.”
Buffett’s comments reflect his assessment of the current risk-return ratio in the market. Should smaller investors follow Buffett’s lead? Does he have insights into a looming recession that the broader market might not see, sending an alarm signal that shouldn’t be ignored? CNBC raised these questions midweek, consulting Josh Brown, an expert on Buffett’s investment behavior due to his extensive analysis of Berkshire.
“Much of What the Media Says Isn’t True”
“I was quite surprised,” Brown admitted in the interview, noting that such behavior is atypical for Berkshire Hathaway. “Buffett doesn’t usually do this; he typically doesn’t just halve his positions. He either sells everything off or sells incrementally.”
This action is even more unusual, given the size of the position. Brown observed that Apple represented half of Berkshire’s portfolio, with its shares equating to a quarter of Buffett’s holding’s market capitalization. This is “a pretty big deal,” but he also noted that much of what’s reported in the media may be misleading. Buffett's cash reserves are not historically as large as some might believe.
While in absolute terms, the cash reserves are at an all-time high, this is relative to Berkshire’s market capitalization. The cash to market value ratio is currently just above 30 percent—a peak not seen since 2020. “Right now, it’s slightly above the long-term average of 25 percent. It’s elevated but not a signal that Warren Buffett is preparing for the apocalypse,” Brown concluded. “What we’re seeing, isn’t Buffett hiding in a bunker preparing for the end of the world.”
The fact that Berkshire’s substantial stock sales have targeted Apple, despite Buffett’s long-time admiration for the tech giant, is not necessarily coincidental. Apple’s sales figures have recently faltered after dethroning Samsung (KS:005930) as the global leader earlier in the year. The company has struggled to keep pace with competitors like Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META) in the rapidly evolving AI sector. Apple even abandoned its long-held plans for a proprietary car to free up resources for an AI push.
Additionally, Apple faces ongoing legal challenges and multimillion-dollar lawsuits, including those from the European Union. Despite these hurdles, Apple’s stock saw a significant increase of about 45 percent in the second quarter. This surge alone reduced Apple’s short-term growth potential, as no stock rises indefinitely. Apple's strong short-term growth and mixed business data likely influenced Buffett’s decision to trim his stake sharply. And Warren Buffett is not alone among the world’s top investors in this approach.
Does Warren Buffett Know Something We Don’t?
Over the past twelve months, executives of the world’s largest tech companies have sold significant portions of their stock. Mark Zuckerberg sold 1.8 million Meta Platforms Inc (NASDAQ:META) shares worth $400 million in the winter of 2023. Jeff Bezos offloaded nearly $9 billion in Amazon (NASDAQ:AMZN) shares within a week in February. In July, just before many tech stocks corrected significantly, Nvidia CEO Jensen Huang sold $320 million worth of his shares, with total sales for the summer reaching half a billion dollars.
These sales represent only a fraction of Bezos’s, Zuckerberg’s, or Huang’s respective holdings and were communicated to investors months in advance. Moreover, all these transactions occurred during extremely bullish market phases when Nvidia, Amazon, and Meta stocks were near their all-time highs. At that time, no one panicked because the market continued to rise.
The leading tech names profited substantially from their companies’ stocks, understanding that a correction follows every rally. However, this correction does not necessarily signal the end of the stock market or the world. Thus, Jensen Huang, Mark Zuckerberg, and Jeff Bezos did not know significantly more about future market conditions or a possible recession than when they liquidated parts of their positions. So, why would Warren Buffett’s situation be any different, especially when his sales became known just as the market panic unfolded?