What You’re Missing About Warren Buffett’s Apple Sale

Have you heard the news that Buffett sold Apple and bought Ulta Beauty and HEICO?

According to the 13-F filing that Warren Buffett’s Berkshire Hathaway submitted to the U.S. Securities and Exchange Commission (SEC) on August 14, Berkshire Hathaway sold 380 million shares of Apple and newly added 690,000 shares of Ulta Beauty and 1 million shares of HEICO.

The news that he unloaded fully half of his Apple stake—$8.4 billion worth—leaves you a bit stunned.

He trimmed Apple, one of the most iconic tech names, and instead bought Ulta Beauty, a cosmetics company, and HEICO, an aerospace company,

Does this mean the downfall of tech stocks is beginning? Grandpa Buffett, didn’t you say you don’t sell good businesses?

Fun to read together: Warren Buffett’s Berkshire Hathaway: A Deep Dive Into the Portfolio

First, a quick word on the new additions, Ulta Beauty and HEICO: you actually don’t need to pay much attention to them.

The portfolio weight of Ulta Beauty (ULTA, Ulta Beauty Inc.) is just 0.1% of the total, ranking 99th among new positions initiated since the third quarter of 2007.

A stock that entered the portfolio around the same time with a similar weight to Ulta Beauty was RH (0.1%), added in the third quarter of 2019.

RH was fully sold just four years later, in the first quarter of 2023.

Next, HEICO (HEI.A, HEICO Corp. CL A) has a 0.07% weight, ranking 103rd among new positions initiated since the third quarter of 2007.

A stock that entered the portfolio around the same time with a similar weight to HEICO was Biogen (0.08%), added in the fourth quarter of 2019.

Biogen likewise was fully sold two years later, in the second quarter of 2021.

It may actually be more appropriate to take a cautious view of these newly added positions.

That’s because when Warren Buffett is serious about building a position, he typically buys at least 0.3% of the portfolio in a given quarter and keeps adding in subsequent quarters.

The Apple sale is understandably quite shocking, given how large the position is.

After this round of selling, Apple now accounts for 30.09% of the overall portfolio, a drop of as much as 10.72 percentage points.

Looking back at previous large-scale disposals:

In the fourth quarter of 2008, the sale of Johnson & Johnson (JNJ, Johnson & Johnson) totaled 33,142,857 shares, or 3.82% of the overall portfolio.

In the fourth quarter of 2014, the sale of Exxon Mobil (XOM, Exxon Mobil Corp.) totaled 41,129,643 shares, or 3.57% of the overall portfolio.

In the first quarter of 2016, the sale of Procter & Gamble (PG, Procter & Gamble) totaled 52,477,678 shares, or 3.33% of the overall portfolio.

Johnson & Johnson was sold to secure liquidity during the financial crisis; Exxon Mobil was sold on a pessimistic outlook amid falling oil prices; and Procter & Gamble was sold because its slowing growth made a spin-off into Duracell necessary.

Isn’t Apple doing well? Its latest earnings also beat expectations. Even so, the scale of the sale feels excessive—should we be selling too?

Warren Buffett clearly explained the first-quarter Apple sale at the Berkshire Hathaway shareholders’ meeting on May 4, saying it was “a trimming of the stake driven by tax concerns, not a change in the company’s outlook.”

This time, however, the amount sold is three times larger. That tells us taxes alone are not the issue.

Is he simply paring back a position he built too quickly by mistake? It is true that Apple’s weight in Berkshire Hathaway’s portfolio could be seen as excessive. Since its initial purchase in 2016, there have been 13 increases in its position size. But Buffett did not rush into buying Apple. We can see this by comparing it with IBM, another tech company.

IBM saw 15 position increases after its initial purchase in 2011.

In fact, in the same year it was added, Buffett bought aggressively over three quarters, purchasing 1.36%, 6.16%, and 9.62% of the total portfolio. Even after that aggressive buying, he continued to add gradually, only to end up selling out of IBM entirely over five quarters starting in 2017.

IBM was one of Buffett’s mistakes. As a result, his approach to Apple was more cautious.

Buffett’s Apple investment, which began in 2016, saw increases of about 6% each in the first quarter of 2017 and the first quarter of 2018. Compared with IBM, where he ramped up the position aggressively right after initiating it, his stance on Apple was more conservative. Moreover, starting in the fourth quarter of 2018, Buffett spent two years gradually trimming Apple’s weight, which at the time was around 20% of the portfolio. With IBM, there was no such fine-tuning of position size.

Because it was the result of a bad investment, its weight in the portfolio could not possibly increase.

Since 2023, Apple has accounted for close to 50% of the total portfolio. Meanwhile, even though Berkshire kept adding to IBM after 2011, it still only made up about 15% of the portfolio.

In 1997, Coca-Cola represented about 37% of the total portfolio, and in 2016 Wells Fargo accounted for about 24%. Apple’s share is clearly unprecedented. Trimming the position is, in a sense, only natural.

In other words, it was not an overly aggressive purchase; you could say the position was trimmed because of the large price appreciation.

In the first quarter of 2017 and the first quarter of 2018, Apple’s portfolio weight increased by 6.39% and 6.59%, respectively, which counts as fairly aggressive additional buying.

However, Berkshire Hathaway has a history of later selling out of other companies it had previously bought aggressively. That’s why some investors can’t quite shake off their unease about Apple.

ConocoPhillips (COP) was bought in the second quarter of 2008 at a portfolio weight of 6.27%, but Berkshire began selling as early as the very next quarter and continued to unload the position through 2014.

Mondelez International (MDLZ) was newly added in the fourth quarter of 2007 with a 6.28% portfolio weight, but from 2010 to 2013 Berkshire sold off most of the position, and the small remainder was finally liquidated in full in 2023.

IBM (IBM) was bought in the third quarter of 2011 at a 9.62% portfolio weight, and at one point Berkshire even kept adding to the position. But this, too, ultimately turned into a long series of sales.

Let’s look at them one by one.

Keep in mind that ConocoPhillips is an energy company.

For Buffett, investing in energy companies is closer to a sector bet on energy itself than an investment in a specific business.

And given that there are even companies he views as superior replacements, it’s hardly surprising that he sold ConocoPhillips.

As with Vitesse Energy (VTS), there have been cases where Buffett sold an energy stock entirely within a single quarter. In other words, his energy investments are not a good template for individual investors to follow.

Kraft Heinz is a company where Warren Buffett once added a very large position—18.03% of the entire portfolio in the third quarter of 2015. This is closely related to Mondelez as well.

First of all, Warren Buffett is clearly very interested in fast food.

By the age of six, Warren Buffett had already started selling gum and Coke on the street, and in 1936, the year he turned six, there was no Burger King or McDonald’s yet, but the word “hamburger” did exist. When Buffett talks about “everything I like to eat,” he’s referring to hamburgers and Coca-Cola — in other words, fast food.

Even now, Buffett is said to drink five cans of Coca-Cola a day and eat a McDonald’s hamburger every day.

Buffett once bought McDonald’s in 1996 but sold it just a year later. He regretted that sale, but at Berkshire Hathaway’s 2002 annual meeting he remarked that McDonald’s was no longer attractive enough to buy back. He wanted to own a hamburger company, but the bus had already left. That was more than enough motivation to look to indirect investments in hamburgers.

Coming back to Mondelez, it is a confectionery company. At the time, Mondelez relied less on patents or proprietary technology and more on marketing and distribution networks. Because of this, Buffett judged that Mondelez’s competitive strength was weak and that it lacked a sufficient economic moat, and he sold the stake.

If you’re wondering, what on earth does a snack company have to do with hamburgers, you could say that 3G Capital’s acquisition of Burger King set Buffett’s mouth watering.

In 2010, when Buffett began selling Mondelez, 3G Capital acquired Burger King in a $4 billion deal.

After Buffett sold out, Mondelez went through a spin-off in 2012. Its global snack brands such as Oreo, Cadbury, and Trident were placed under Mondelez International, while the North America–focused grocery business was separated into Kraft Foods Group.

Meanwhile, in 2013, 3G Capital, with the help of Berkshire Hathaway, acquired Heinz for $28 billion.

Burger King and Heinz, hamburgers and ketchup — you see where this is going?

Then in 2014, 3G Capital, with a loan from Berkshire Hathaway, merged Canadian fast-food chain Tim Hortons with Burger King to form Restaurant Brands International (RBI).

In 2015, 3G Capital once again, with the help of Berkshire Hathaway, merged Kraft Foods Group and Heinz to create Kraft Heinz. At that point, Kraft Foods became a major holding in Berkshire Hathaway’s portfolio.

Kraft’s flagship products are cheeses. The company grew rapidly after developing processed cheese in 1916.

Heinz’s core product is ketchup. Heinz ketchup is already a household name. The company also owns Ore-Ida, a frozen potato brand.

Cheese, ketchup, potatoes… and Coca-Cola, which Berkshire Hathaway already owned.

You now have a complete fast-food combo meal.

From the interview, we can infer that the “money” he refers to is not limited to Kraft alone, but also includes the transaction involving Mondelez and the financial support he provided, such as loans for the merger of Tim Hortons and Burger King.

In the end, the reason for selling Mondelez was the substitutability of its product lineup at the time. In contrast, even though Buffett calls Kraft Heinz a “mistake of paying too much,” he has not sold it. That makes sense. The taste of Heinz Ketchup is something you can only experience with Heinz Ketchup.

What we should think about from the above cases is this: Is there any company that can threaten Apple’s competitive edge?

We can see that when Warren Buffett evaluates competition, he tends to prioritize competitive strength derived from synergies over the technology a company possesses on its own. Ketchup has an edge because it pairs well with a hamburger combo.

In that sense, Apple may already be a fully assembled combo meal for Warren Buffett. Apple has built an ecosystem, and Buffett deeply understands the significance of ecosystems in technology companies.

Berkshire Hathaway, led by Warren Buffett, began buying Apple in 2016, and the sale of IBM started the following year.

Seen through the lens of Buffett’s thinking, the IBM sale is not a precedent that should make us expect further Apple disposals. Instead, it is evidence that Apple remains attractive to Buffett.

If we don’t need to worry about Ulta Beauty, HEICO, or Apple, then which companies should we be paying attention to?

It might be interesting to look for companies that Warren Buffett seems to be quietly accumulating these days.

Berkshire Hathaway transaction history, 07Q3–24Q2