Warren Buffett Isn’t Always Right on Apple Stock

• Apple is Berkshire Hathaway’s biggest holding. Warren Buffett took a stake in the company in 2016. He gradually increased the stake.
• Meanwhile, despite the fall in Apple stock in the fourth quarter of 2018, Berkshire Hathaway didn’t add more shares. In contrast, one of the investment managers at Berkshire Hathaway actually sold some shares.
• Notably, Apple is the best performing FAANG stock this year. Berkshire Hathaway added Amazon to its portfolio in 2019. So far, Amazon is underperforming Apple by a wide margin this year.
• Today, J.P. Morgan raised Apple’s target price from $243 to $265 due to optimism about iPhone sales.

Berkshire Hathaway (BRK-B) (BRK.B) is Apple’s (AAPL) second-largest shareholder. Warren Buffett, Berkshire Hathaway’s chairman, first took a stake in Apple in 2016. Gradually, Berkshire Hathaway increased its stake in Apple. Based on the most recent filing, Apple was Berkshire Hathaway’s largest holding at the end of the second quarter. Warren Buffett has praised Apple products. He sees the company as a consumer company and not necessarily a technology company. In general, Buffett hasn’t invested in technology stocks. Read Should Buffett and Berkshire Warn Up to Tech Stocks? to learn more.

Notably, Apple stock fell sharply in the fourth quarter of 2018. At one point, Apple’s market capitalization fell below $700 billion for the first time since 2017. Berkshire Hathaway added Apple shares gradually. The company added more shares in the third quarter of 2018. The markets expected Buffett to add more Apple shares in the fourth quarter of 2018. However, Warren Buffett surprised markets by not buying more shares. In contrast, one of the other investment managers at Berkshire Hathaway actually sold some Apple shares. Berkshire Hathaway stated that Buffett didn’t sell the shares.

Buffett has admired Apple in the past. As a value investor, Buffett was expected to add more shares when Apple stock fell in the fourth quarter. One of the other investment managers at Berkshire Hathaway brought some Amazon shares in 2019. Looking at the year-to-date price action, Apple is the best performing FAANG stock. So far, Apple has risen 40.4% in 2019, while Amazon (AMZN) has risen 14.9%. Facebook (FB) and Alphabet (GOOG) have risen 35.1% and 18.3%, respectively. Netflix (NFLX) has pared its 2019 gains. Now, the stock has fallen 1.7% for the year.

Earlier this year, in an interview with CNBC, Buffett was asked whether he would buy Apple “at $160 or something.” He said that he wouldn’t. However, Buffett did say that he might consider adding more shares if the stock price went lower. After the sell-off at the beginning of the year, Apple looked strong. The stock is trading near $220 price levels. Given Warren Buffett’s previous views, he might not add more Apple shares at these prices. Since Berkshire Hathaway’s net buying activity has been subdued over the last few quarters, its cash pile has swelled. A big cash pile at a time when equity markets are rising seems to be denting Berkshire Hathaway’s 2019 performance. The company’s 2019 returns are way below the S&P 500.

Do investors benefit from following a well-known fund manager or hedge fund? Many examples show that following a big investor might not always be a profitable strategy. Read Following Warren Buffett Might Not Always Yield Profits to learn more. Similarly, exiting a stock just because a hedge fund sold its stake might not always yield the desired results. Read Exiting Like Warren Buffett: Is It a Profitable Strategy? to learn more.