Since the start of 2024, the S&P 500 has been on a firm upward trajectory, sending a large part of Warren Buffett’s portfolio surging. For passive index investors, a 28% gain has been reaped over the last 10 months, including dividends. But for Buffett who, until recently, had a third of his portfolio concentrated in Apple (NASDAQ:AAPL), the returns have been far more spectacular thanks to his low initial purchase price.
Yet after enjoying tremendous returns, there is growing sentiment among investors that valuations are getting quite hot. And based on the latest filings from Buffett’s investment firm, Berkshire Hathaway, the Oracle of Omaha seems to agree.
Warren Buffett has been selling
Two of Berkshire’s largest holdings, Apple and Bank of America, have recently been clipped down. There are a lot of factors at play for both businesses. And based on comments during the May 2024 shareholder annual meeting, it seems these decisions may be related to taxes rather than the businesses.
With both stocks in the Berkshire portfolio having appreciated significantly, Buffett has been sitting on a lot of unrealised capital gains. And since he has projected that the corporation tax rate will eventually rise, taking profits while rates remain low may be the wiser long-term move.
Portfolio rebalancing may also have played a role. With both stocks representing a significant chunk of invested capital due to strong performance, he may also be adjusting to keep risk in check. But if taxes and rebalances are indeed the reasons behind these sales, does that make these shares still worthy of investment today?
Should I buy Apple shares in 2024?
Let’s zoom in on Buffett’s biggest holding – Apple. He once described it as “probably the best business I know in the world”. And looking at the tech giant’s track record, it’s hard to argue with that opinion. However, in more recent months, concerns have started to pop up regarding Apple’s reliance on iPhone sales.
The newly launched iPhone 16 did not live up to demand expectations when compared to previous releases, especially in China. It seems that even with the touting of AI features, consumers haven’t been as keen to upgrade to the latest model. And that does mean I start to question whether a price-to-earnings ratio of 37 is justified.
Having said that, some analysts are projecting the start of a new upgrade cycle once the iPhone 17 enters the market next year. And considering macroeconomic conditions are also expected to be significantly stronger, this argument does seem to hold some weight, helping to justify the current valuation.
So, is this a buy to consider or not? That all depends on the risk tolerance of individual investors. I’m quite optimistic that Apple will continue to be an industry-leading enterprise over the next decade. And with Buffett seemingly selling based on tax and risk management it suggests he hasn’t secretly discovered a massive flaw in the company.
Personally, I’m not looking to add any more exposure to the consumer tech industry to my portfolio right now. So Apple isn’t on my buy list. But there’s no denying it’s a quality business that merits a closer look by other long-term investors.
