Why has Warren Buffett just sold $20 billion of his biggest investment?

Buffett's latest move is a surprising one…

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Warren Buffett is without question the most famous investor in the world. At 93 years old, Buffett is one of the world's richest people, with an estimated fortune of around US$140 billion.

Buffett has been investing in shares for decades, and his astronomical returns over the past six or seven decades is a source of inspiration for almost all investors.

Thankfully, Buffett has never been shy when it comes to educating other investors and teaching his secrets to investing success. Over the weekend, Buffett hosted the annual shareholders meeting of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B), famously held in his hometown of Omaha, Nebraska.

Routinely dubbed the 'Woodstock for capitalists', this annual meeting has Warren Buffett appear in front of crowds of shareholders and admirers and answer questions for hours. It's essential viewing for any aspiring value investor.

Buffett is famous for his long-term 'buy-and-hold' investing style. He notably once said that his favourite length of time to own a share is 'forever'.

With this in mind, it was rather strange to see that Buffett had made a substantial sale of Berkshire's largest individual stock holdings when the company's most recent 10Q report came out just before the meeting. That largest holding is none other than the iPhone maker Apple Inc (NASDAQ: AAPL).

Buffett sells US$21 billion worth of Apple stock

Yes, Berkshire's most recent 10Q filing – which covers the three months to 31 March 2024 – shows that Berkshire offloaded approximately 115 million Apple shares over the quarter in question. At recent pricing, this sale would amount to roughly US$21 billion worth of stock.

To be fair, Buffett, through Berkshire, still has a US$144.8 billion position in Apple. It remains Berkshire's largest single holding by far, making up just over 40% of the company's stock portfolio.

But it is odd to see Buffett selling down this position by more than US$20 billion, given what he has said in the past about his love of owning high-quality companies forever.

So what gives? Well, Buffett was asked about Apple at the Berkshire meeting over the weekend, and whether his positive outlook on the company has changed.

Here's some of what he said:

No… But we have sold shares, and 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 now…

We will have Apple as our largest investment, but I don't mind at all, under current conditions, building the cash position. I think when I look at the alternative of what's available, the equity markets, and I look at the composition of what's going on in the world, we find it quite attractive…

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 mine or Berkshire's, they can 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 a little Apple this year.

Taxes and risk-free returns

So it seems that Buffett reckons some of the capital that Berkshire has deployed in Apple is better off sitting in cash right now. With interest rates at decade-highs, Berkshire can get a risk-free rate of over 5% on its cash right now.

It seems that Buffett would prefer to get this 'safe' level of return on that US$21 billion in the current climate rather than have it invested in Apple.

He also alludes to perhaps taking advantage of the current low US corporate tax rate to crystalise some of the extraordinary gains Berkshire has made on its Apple investment over time.

It could be that Buffett would rather pay a 21% corporate tax rate today than pay a higher rate in the future if he feels that trimming Berkshire's Apple position is inevitable.

Motley Fool contributor Sebastian Bowen has positions in Apple and Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway. The Motley Fool Australia has recommended Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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