In the first half of this year, Berkshire Hathaway's Chairman and CEO, Warren Buffett, conducted large-scale stock sell-offs, particularly drawing attention for reducing holdings in Apple. According to public data, Buffett decreased his Apple holdings by about 55% in the first half of 2024, selling approximately 505.9 million shares at an average price of around $186.15 per share. However, since the third quarter, Apple's stock price has increased by about 10%, resulting in an approximate $23 billion paper loss for Berkshire.
The rise in Apple's stock price is partly attributed to the launch of its "Apple Smart" technology, which has enhanced the appeal of its hardware products and positively influenced market outlook on the company's future potential. As of October this year, Apple's stock price had risen by a cumulative 25.05%. Although Buffett did not provide a clear reason for the sell-off at Berkshire's annual meeting in May, he did express concerns about tax reforms, particularly the expected corporate tax rate increase by the end of next year, prompting him to sell a substantial amount of stock at the current tax rate.
From a macroeconomic perspective, Buffett's investment decisions are influenced by multiple factors. Firstly, the expectation of U.S. tax reforms has profound impacts on future corporate profitability and stock market performance. If tax rates rise, corporate profits will be squeezed, potentially negatively affecting stock prices. Buffett aims to lock in some profits at the current tax rate to reduce future uncertainty risks.
Secondly, as the Federal Reserve gradually tightens monetary policy and market concerns about a global economic slowdown increase, stock market uncertainty rises, prompting Buffett to adopt a more cautious investment strategy. This also explains his reduction not only in Apple stocks but also in other core assets like Bank of America stocks while gradually increasing Berkshire's cash reserves. By mid-August 2024, Berkshire's cash reserves reached a record $189 billion, providing the company with more flexibility amid market turbulence.
Buffett's stock reduction strategy can also be seen as a cautionary response to market overvaluation. Despite multiple record highs in the U.S. stock market, some investors believe the market has risen too quickly, with valuations at high levels, posing a risk of a pullback. Buffett's decision to cash in some positions at this time reduces the risk of having an overly concentrated investment portfolio and reserves more cash for the company to seize potential investment opportunities during future market adjustments.
Overall, Buffett's investment decisions reflect his comprehensive consideration of the macroeconomic environment, tax policies, and market valuations. Although the reduction in Apple stocks resulted in paper losses, Buffett remains focused on his prudent investment style, emphasizing long-term value and risk management. As market conditions change, Berkshire's cash reserves and future investment strategy will become focal points for investors.
