Apple (AAPL) stock declined in an up market Monday after Berkshire Hathaway (BRK.B) disclosed it cut its stake by 13% in the most recent quarter.
Is Warren Buffett, Berkshire’s chairman and CEO, losing faith in what is by far the company’s largest holding?
Not at all.
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Buffett took pains to explain to Berkshire shareholders at their annual meeting in Omaha on Saturday that the iPhone maker is still, er, the Apple of his eye. (It would have been embarrassing not to, considering Apple CEO Tim Cook attended the meeting in person.)
For the record, the greatest long-term investor of all time said that AAPL is “even better” than American Express (AXP) or Coca-Cola (KO), two “wonderful” businesses that Berkshire has owned since the early 1960s and late 1980s, respectively.
Indeed, during the question and answer portion of the meeting, Buffett was asked: “[Has your] view of the economics of Apple business or its attractiveness as an investment changed since Berkshire first invested in 2016?”
Buffett: “No. But we have sold some shares.”
Why? Because corporate taxes are “likely” to go up “later.” He figures the federal government – at some unknown future date – will have to raise taxes to reduce the deficit.
“With current fiscal policies, I think something has to give,” said Buffett. “I think that higher taxes are quite likely.”
That’s not exactly a heretical idea, regardless of your policy preferences or political inclinations. It’s also kind of irrelevant. Buffett is a steward of other people’s capital. It’s his job to maximize their returns.
“If I’m looking at a 21% rate this year and then we’re [paying] a lot higher percentage later on, I don’t think you’ll actually mind the fact later on that we sold a little Apple this year,” Buffett said.
He noted that Berkshire’s corporate tax rate was 35% just a few years ago. Back in the late 1960s, it was more than 50%.
Buffett on paying taxes
Mind you, Buffett is no tax dodger. Here are some of the things he said about taxes when explaining the Apple stock sales:
- “Almost everybody I know pays a lot more attention to not paying taxes than I think they should.”
- “We don’t mind paying taxes at Berkshire.”
- “We at Berkshire always hope to pay substantial federal income taxes. We think it’s appropriate [to pay taxes] to a country that’s been as generous to our owners. It doesn’t bother me in the least to write that check. I would really hope that with all that America has done for all of [Berkshire shareholders], it shouldn’t bother you that we do it.”
The bottom line is that Berkshire doesn’t mind paying taxes. But if they’re going to go up, better to pay them at a lower rate today than a higher rate tomorrow.
Apple by the numbers
Apple is still Berkshire Hathaway‘s largest holding.
At one point last year AAPL accounted for about half of the holding company’s U.S. stock portfolio. However, with 790 million shares (down from 905 million at the end of 2023), Apple is now somewhere in the lower-to-mid-40% range.
That’s a hefty allocation, but then Berkshire has always maintained a highly concentrated portfolio. Including its positions in Japanese brokerages, Berkshire’s top five holdings – AAPL, Bank of America (BAC), AXP, KO and Chevron (CVX) – comprise about 75% of its equity portfolio.
We won’t know the exact breakdown of Berkshire’s holdings until it files its Form 13F with the Securities and Exchange Commission after the market closes on May 15.
Whatever the filing reveals, Apple bulls needn’t fret about Berkshire Hathaway losing its taste for Apple.
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