Warren Buffett’s premature Apple selloff cost his firm $20 billion

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Buffett
Warren Buffet is Apple's biggest investor.
Photo: CNBC

Warren Buffett is one of the greatest financial masterminds of our time. But he’s not infallible. Sometimes even Warren makes mistakes — and one of those recent mistakes was called Apple.

Buffett’s Berkshire Hathaway firm has long invested in Apple, with Buffett once saying that, “I don’t think of Apple as a stock. I think of it as our third business. It’s probably the best business I know in the world. And that is a bigger commitment than we have in any business except insurance and the railroad.”

Apple has done extremely well for Buffett. The company’s stake in Apple has tripled in value in the past three years. On Wednesday, as Apple closed at a new all-time high, it was worth $128 billion. It accounts for more than 40% of Berkshire’s US portfolio, while Berkshire is Apple’s second larger shareholder (after index fund giant Vanguard.) However, Buffett has also been pruning his Apple stake. And it’s cost him.

In recent years Buffett has handed back 12% of it. Business Insider notes that:

“The investor has more than tripled his money on Apple in the past three years. But he would have quadrupled it if he didn’t sell a chunk of the holding.”

In other words, getting trepidatious about Apple holding cost Buffett $20 billion — or approximately 14 times the net worth of Tim Cook. It would otherwise have been worth $148 billion.

It’s hard to totally blame Buffett, of course. By his own admission in 2011 he didn’t totally get Apple’s business, and has had to slowly come around to it. He has even gotten a personal iPhone lesson from Apple CEO Tim Cook — without being able to get to grips with Apple’s most popular device. Every investment guide ever talks about diversification, and it’s easy to see how having Apple make up almost half your stock portfolio is nerve-racking.

But Buffett knows he made an error trimming Berkshire’s Apple position. At the May annual meeting he said it was “probably a mistake” to have done so. He also said that Berkshire’s vice-chair Charlie Munger advised him about selling Apple holdings.

The Business Insider article notes that, amazingly, the dividend on Berkshire’s Apple holdings alone has earned it an average of $775 million per year over the past three years. That’s certainly nothing to sniff at.

Apple’s current market cap stands at $2.3 trillion.

Source: Business Insider