{"id":554652,"date":"2024-08-10T09:00:00","date_gmt":"2024-08-10T07:00:00","guid":{"rendered":"https:\/\/mybroadband.co.za\/news\/?p=554652"},"modified":"2024-08-10T09:00:58","modified_gmt":"2024-08-10T07:00:58","slug":"warren-buffets-apple-masterstroke","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/hardware\/554652-warren-buffets-apple-masterstroke.html","title":{"rendered":"Warren Buffet’s Apple masterstroke"},"content":{"rendered":"\n

In this column, Ranmore Fund <\/em>Management<\/em>‘s<\/em><\/span> Sean Peche analyses the timing and execution of Warren Buffett’s sale of the majority of his stake in Apple. Buffett<\/em>‘s rationale, partly driven by tax considerations and Apple’s high PE ratio, reflects his value investing principles.<\/em><\/p>\n\n\n\n

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I\u2019m scoring the Oracle of Omaha \u2014\u00a0and his trader \u2014 10\/10 for the timing and execution of their Apple sale.<\/p>\n\n\n\n

He played it down a little at the AGM in May when questioned about his Q1 sale of 115 million Apple shares.<\/p>\n\n\n\n

But meanwhile, his trader was working flat out to sell half his remaining stake.<\/p>\n\n\n\n

Bloomberg data tells me 4.4 billion Apple shares traded in Q2, so Berkshire\u2019s sale of 394 million means he was 9% of the volume \u2014 that\u2019s big!<\/p>\n\n\n\n

And since another 1.6 billion Apple shares have traded so far this quarter, the average price is 19% higher ($222 vs. $186).<\/p>\n\n\n\n

I wouldn\u2019t be surprised if they sold another 141 million shares\u2026<\/p>\n\n\n\n

But Warren Buffett said at the AGM that he expected Apple to remain Berkshire\u2019s largest stock investment!<\/p>\n\n\n\n

Yes, but he did caveat that with \u201cunless something extraordinary happens\u201d.<\/p>\n\n\n\n

And this AI frenzy feels \u201cextraordinary\u201d.<\/p>\n\n\n\n

He also said selling made sense because the 21% Federal Tax rate on the gains would probably increase, meaning he\u2019d rather lock in his gains at a known 21% than risk having all historic gains taxed at a potentially higher CGT rate \u2013 all those living in the UK may want to take note\u2026<\/p>\n\n\n\n

But his reasoning may be more than just taxes.<\/p>\n\n\n\n

Berkshire is also sitting on massive unrealised gains of ~$57bn on their Amex and Coca-Cola stakes.<\/p>\n\n\n\n

And he hasn\u2019t sold those.<\/p>\n\n\n\n

Maybe it\u2019s because AXP and KO are still growing revenue and trade on lower multiples.<\/p>\n\n\n\n

What do you mean?<\/p>\n\n\n\n

Look, Warren Buffett is a value investor.<\/p>\n\n\n\n

This means he\u2019s sensitive to price.<\/p>\n\n\n\n

And Apple is priced at 30x historic earnings.<\/p>\n\n\n\n

The problem is revenue hasn\u2019t grown over the past year, and EBITDA margins of 34% are the highest in 9 years.<\/p>\n\n\n\n

It\u2019s one thing to have a high price-earnings ratio (PE) on low earnings that can grow.<\/p>\n\n\n\n

But Apple has a high PE on high earnings, which will fall if Google stops paying<\/a> $20bn to be the default search engine.<\/p>\n\n\n\n

People forget that many Value investors (like us) also want growing companies.<\/p>\n\n\n\n

We just don\u2019t want to pay any price for that growth, so there is a price at which we sell.<\/p>\n\n\n\n

Apple has reached the price at which Mr Buffett is a seller.<\/p>\n\n\n\n

But I thought his \u201cfavourite holding period is forever\u201d?<\/p>\n\n\n\n

Yes, but he said, \u201cfavourite\u201d.<\/p>\n\n\n\n

He didn\u2019t say, \u201cOur only holding period is forever\u201d.<\/p>\n\n\n\n

And he also said, \u201cBe greedy when others are fearful and fearful when others are greedy.\u201d<\/p>\n\n\n\n

And in the past few weeks ago, we\u2019ve learned that:<\/p>\n\n\n\n