Did Warren Buffett Make a Mistake by Selling This Cheap, High-Yield Stock?

Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has been known for his value-oriented investment strategy and long-term perspective. However, his recent decision to sell a significant portion of his stake in a high-yield stock has raised questions about whether he made a mistake. In this article, we will explore the factors leading to Buffett's decision, the performance of the stock since his sale, and the potential opportunities missed by selling it.

Buffett sold a large chunk of his Apple shares in the second quarter of 2024, totaling 389,368,450 shares. This sale was part of a broader trend of selling more stock than he bought for Berkshire Hathaway's equity portfolio in recent quarters. The factors contributing to Buffett's decision to sell Apple shares include:

1. Performance issues: Apple has faced several operational challenges, including declining sales and earnings. In the second quarter of 2024, Apple reported a net loss of $1.1 billion, compared to a net income of $6.1 billion in the same quarter of 2023. This significant decline in performance may have contributed to Buffett's decision to sell his stake.
2. Market conditions: The broader market conditions in late 2023 were characterized by high volatility and uncertainty, with the S&P 500 index experiencing significant declines. Buffett may have chosen to sell his stake in Apple as part of a broader strategy to reduce risk in his portfolio during this tumultuous period.
3. Valuation concerns: Despite its high dividend yield, Apple's stock price had been declining for several years, leading to a significant increase in its forward price-to-earnings ratio. As of the fourth quarter of 2023, the stock was trading at around 18.5 times forward earnings, which may have been too high for Buffett's liking, given his value-oriented investment philosophy.



Since Buffett's sale of Apple shares, the stock has continued to rise. As of the time of this writing, Apple's stock price is around $186.49, which is higher than the average closing price of $181.83 during the first quarter when Buffett sold a significant chunk of his shares. This means that if Buffett had not sold those shares, Berkshire Hathaway would have seen a gain of around $16.9 billion on the Apple stock sales alone.

However, Berkshire Hathaway has still seen a significant gain from its remaining Apple shares. As of the time of this writing, Berkshire's $69.9 billion remaining Apple stake is its largest public stock holding. The stock has appreciated significantly since Buffett first invested in it back in the first quarter of 2016, and even after the latest sale, Berkshire's Apple stake is still worth more than $120 billion.

The sale of Apple shares has had an impact on Berkshire Hathaway's overall portfolio, but it is difficult to quantify the exact impact without knowing the specific details of the company's other investments. However, it is clear that Berkshire Hathaway has a significant amount of cash on hand, with over $277 billion in cash and short-term Treasury bills as of the end of June 2024. This means that the company has the financial resources to weather any potential losses from the sale of Apple shares and continue to make new investments.

In addition, Berkshire Hathaway has made several new investments in recent quarters, including Domino's Pizza, Pool Corp, and Heico. These investments suggest that the company is still actively looking for new opportunities to deploy its capital, even after the significant sale of Apple shares.

In conclusion, while Warren Buffett's sale of Apple shares may have been a valid decision based on the factors leading to his decision, the stock's subsequent performance raises questions about whether he made a mistake. However, Berkshire Hathaway's significant gains from its remaining Apple shares and the company's substantial cash reserves suggest that the sale has not had a major impact on the overall portfolio. Ultimately, only time will tell whether Buffett's decision was a mistake or a shrewd move in a volatile market.