Berkshire trails S&P by the widest margin this year as Apple’s sale costs Warren Buffett billions

Berkshire Hathaway is trailing the S&P 500 by the widest margin this year as Warren Buffett’s decision to sharply cut the conglomerate’s stake in Apple continues to weigh on performance even as Berkshire’s own shares recover from their summer lows.

Berkshire Hathaway’s Class B shares are up 7.2% since an Aug. 4 low of $459.11, recouping some of the nearly 15% decline that followed Buffett’s surprise announcement in early May that he would step down as CEO at the end of the year. The stock is up 8.6% so far this year, while Class A shares are up 8.5%.

However, the broader market has continued to advance. The S&P 500 is up 15.5% this year and up 7.3% since August 4 to close at a new record high on Friday, helped by lower-than-expected inflation in September. That 6.9 percentage point performance gap is now the largest Berkshire has trailed the benchmark index all year.

Selling Apple costs Berkshire billions

Apple, which accounts for 6.35% of the S&P 500, also ended Friday at a record high of $262.82 per share, more than 50% above the price when Berkshire began reducing its holdings in late 2023. Since then, Berkshire has reduced its stake in Apple by 69%, to 280 million shares as of June 30, from nearly 916 million as of September 30, 2023. The iPhone maker remains Berkshire’s largest stock position, although further changes could be announced when the company reports its third-quarter holdings in mid-November.

If Berkshire had retained its entire stake in Apple, it would be worth about $241 billion today, compared to about $74 billion today – a difference of $167 billion. Barron’s estimates that Berkshire’s average sales price was around $185 per share, yielding pretax profits of about $96 billion, but left about $50 billion “on the table.” These realized profits were further reduced by approximately $20 billion in taxes.

Buffett’s explanation

Buffett has said little about Apple’s selloff, beyond comments made at Berkshire’s annual meeting last year. At the time, he told shareholders that he expected Apple “to remain Berkshire’s largest stock position well into the future,” calling it an even better company than legacy holding companies American Express and Coca-Cola. He added that he expected higher U.S. capital gains tax rates in the future and believed investors would rather pay a lower rate for what he described as a small sale of Apple than a higher tax later. At that point, Berkshire had reduced its stake by only about 14%.

Jazzwares expands partnerships

In addition, Berkshire’s toy and collectibles subsidiary Jazzwares announced two new partnerships this week. The creator of the hit ‘Squishmallows’ line said it will be the official global plush licensee for next year’s FIFA World Cup, with products including the highly anticipated official mascot set to launch in June.

Jazzares also works with Warner Bros. Discovery Global Consumer Products to launch a wide range of plush items across the studio’s entertainment catalogue. Initial releases include a ‘creepy’ collection featuring characters from Tim Burton’s Corpse Bride, Gremlins and IT: Welcome to Derry, with more collaborations expected to follow.

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