The legendary investor Warren Buffett started the year with a huge stake in Apple (NASDAQ: AAPL).
In fact, it was by far the largest stake held by his company, Berkshire Hathaway, in any listed company. Over recent weeks it has emerged that Buffett has sold around $75bn worth of Apple shares since the start of the year.
Does that mean he has turned bearish on the company? Not necessarily. After all, he continues to hold a massive stake in Apple even after the sale, as far as we know for now.
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On top of that, Buffett has not yet publicly addressed the reasoning behind the sale. Still, I think there are three excellent lessons to be drawn from it for all investors.
1. Shares are investments, not life partners
Does Warren Buffett love Apple?
It has the hallmarks of a classic Buffett buy: a huge market of potential customers, proprietary technology, a well-established brand, and attractive profit margins. The investment has been hugely profitable for Berkshire.
But that is exactly what it is: an investment.
Buffett is a rational investor focussed on financial success, not an emotional romanticist who falls in love with the shares he owns.
It is easy to become emotionally attached to a shareholding, if just out of pride. Buffett sometimes sounds like he is in love with specific shares – but in reality, he is in a financial investor, pure and simple.
2. Diversification matters
Buffett’s sale of so many Apple shares also helps reduce one of the challenges I think had been facing Berkshire.
As Apple stock had soared (it has more than tripled over the past five years, underlining once again that Buffett is a brilliant investor), it had come to represent an outsized proportion of Berkshire’s portfolio of publicly traded shares.
An investor of any size, from beginner to Buffett, needs to manage risks.
Keeping a portfolio properly diversified is an important part of that. One can be a victim of one’s own success in this sense. As Apple soared, it came to occupy an ever greater part of the Berkshire portfolio.
Still, diversification is always a good idea. The sale of some Apple shares is a good example of that.
3. Trying to time the market precisely is a mug’s game
The Apple stock price has moved higher since the first half of the year, when Warren Buffett was selling.
So, did he sell too early?
In fairness, one of the contributors to that price trend may have been Buffett unloading so many shares in the first half.
But the bigger point in my view is that Buffett looks at what he has compared to what he thinks it is worth. That is different to trying to time the absolute peak and then getting out just in advance.
Apple could move down from here, due to a high valuation and declining sales. Then again, those factors have been true all year – and Apple has already gained 20% nonetheless. It may go higher yet.
Rather than trying to time the market exactly – a mug’s game – Buffett has taken a lot of money off the table and banked a very tidy profit in the process.
