Apple stock now accounts for about 50% of Berkshire Hathaway’s portfolio. Buffett and team could take advantage of the recent rally in AAPL to find more opportunities in the market.
Ihave recently taken a temporary stance on Apple stock that is not very popular among AAPL investors and enthusiasts: the stock could struggle to keep its rally intact in the immediate term, and locking in some profits now might make sense.
But would Warren Buffett and his team consider making the same move in Berkshire Hathaway’s portfolio? Today, the Apple Maven looks at the possibility.
Buffett: not big on diversification
The Nebraska-based conglomerate disclosed its Q3-end holdings in mid-November. Now, after Apple stock climbed an impressive 23% since the start of the current quarter alone, AAPL accounts for roughly 50% of Berkshire’s total asset value — assuming no change in ownership.
To the best of my knowledge, this is the most concentrated that this portfolio has ever been in one single name. Yet, low levels of diversification is consistent with Warren Buffett’s stance on the matter. Here is his famous quote:
"Diversification is protection against ignorance. It makes little sense if you know what you are doing."
For this reason, I would not automatically assume that Berkshire Hathaway will reduce its exposure to AAPL in the near term only because the stock has been up lately — maybe not even for rebalancing purposes. This next quote summarizes Warren Buffett’s approach to trimming winning positions:
"You would not sell off Michael Jordan just because he has gotten so important to the team."
But trims at the peak have happened
Warren Buffett is probably the best-known “buy and hold” investor out there. Hisforteis certainly not to time entries and exits, but to bet on above-average companies at a reasonable price and stay put over a multiyear or multi-decade period.
Having said this, don’t think that Berkshire would never sell shares in one of its largest positions. Apple itself is an example. In Q4 of last year, the conglomerate sold $7.4 billion worth of Apple stock, effectively reducing the AAPL allocation to 43% from 48% in a matter of six months.
I explained, earlier this year, that the trim did not mean that Berkshire had become less bullish on AAPL at the turn of the year. Keep in mind that Warren Buffett is generally very diligent about price and value, and Apple stock had climbed nearly 50% in the second half of 2020 alone.
What next?
Following the same rationale above, I believe that Berkshire could unwind a bit of its AAPL position in Q4. Apple stock spent the better part of 2021 trailing the broad market, which helps to explain why Buffett’s company kept the same 887 million shares in the portfolio for the past few quarters.
However, with the stock well ahead of the Nasdaq in November and December, the Oracle of Omaha may start to look at buying opportunities in the market. Some of Buffett’s favorites, like Verizon and Coca-Cola, have been lagging the S&P 500 by quite a bit in 2021.
Selling some AAPL to finance these purchases is a reasonable expectation, in my view.