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Have your views or those of your investment manager changed on the economics of Apple's business or its appeal as an investment since Bergshire's initial investment in 2016? Well , everyone. Buffett is making headlines again, and it was a big move. Warren Buffett is selling parts of Apple. I'm here in Omaha right now, hence the strange background.
And I was very fortunate to attend the Berkshire Haway shareholder meeting in person again this year. I am always extremely grateful for the opportunity to come here and listen to Warren, and to meet all of you. Honestly, I've met so many of you. It was madness. So I really appreciate that. Thank you for coming and saying hello.
Let's continue the Birkshire Bonanza. And I'll also quickly point out that I've decided to do a big Birkshire sale on New Money Education. There was a lot of discussion at this year's meeting about learning, charity, and just being kind. So what the hell? I decided to give you a 50% discount using the Bergkshire 24 coupon.
I know many of you will say, "Well, if you want to give, why not give 100% off?" I'll be honest with you. I still need to earn money from these courses to cover our business expenses. This is so we can continue to produce these high-quality YouTube videos for free, but hopefully this might still sound like a cool proposition to some of you who may have already reviewed the courses and wanted to learn a complete Warren Buffett-style approach to investing.
And if you've never heard of New Money Education before, you're probably looking for the Introduction to Stock Analysis course, which is over 6 hours long and covers Buffett's complete approach, including financial statement analysis , stress testing regimes, and management teams, and includes three comprehensive valuation methods.
But in any case, let's get back to business. I'm glad to be here. And this time we have huge news. Buffett is selling Apple, and it's actually quite significant. Sometimes he reduces the stock by a few percent here and there, but this time it was a pretty big chunk. So at the start of this quarter, Apple was his biggest stock by a wide margin.
In fact, it was over 50% of his stock portfolio, and now he has just sold 116 million shares of Apple. Overall, Berkshire's share decreased by 13%. Here's what he said about it . Given what you mentioned, there was some news this morning in Q10 . They show that Bergkshire sold another 115 million Apple shares in the last quarter.
This is Bergkshire's greatest asset . Have your views or those of your investment manager changed on the economics of Apple's business or its appeal as an investment since Berkshire's first investments in 2016? No. I would say, but we sold the shares. I would say that at the end of the year, I think it's extremely likely that Apple will be the largest common stock holding that we have.
And for me, it's really interesting because, honestly, it raises more questions than we get answers to . He is selling 13% of Apple shares, but also assures investors that their largest position will remain in Apple in the future. But here's the thing. Warren Buffett has said many times in the past that he doesn't do shorting .
Sometimes they do it in small chunks for tax reasons and such, but he definitely doesn't cut positions without a good reason. Charlie and I looked at common stocks, market stocks, or things that people like to think of as businesses. When we own Dairy Queen or whatever it is, we treat it like a business.
And when we look at Coca-Cola, American Express, or Apple, we look at it as a business. We have no ability, no attempt, to predict the markets. We were n't trying to, uh, pick stocks. But if he's not making changes to his portfolio based on market conditions or external factors, as he just pointed out , doesn't he mean that Apple's 13% decline had to be due to something business-related?
Well, fortunately, there's more to this story , and Buffett explains his reasoning. But before we get to that, I would like to let you know that actually the whole reason Hamish and I were able to come to Omaha this year is because of a sponsor, and that business is Morning Brew. So I would really appreciate it if you click on the link in the comment on the pinned post and check them out.
If you don't know anything about Morning Brew, they write a daily newsletter that I've been reading for literally years. And the reason I like their content is that every day they cover the top news in investing, business, and technology, but they don't get distracted. It's short, concise, and actually funny.
So, if you're a very busy person like me, you should definitely subscribe to stay up to date with what's going on. And it literally takes 10 seconds. And the best thing is that it's free. This is a free newsletter . So this is a really quality resource. As you can see, yesterday they even talked about the upcoming Berkshire meeting.
So please, if you can, I would really appreciate it if you would support this journey we are embarking on by subscribing to Morning Brew. I would be very, very grateful. And also a big thank you to Morning Brew for sponsoring our trip this year and making it all possible for us. So, back to Warren. What are you doing, mysterious 93-year- old man?
Well, there are actually a few reasons that he alluded to later in the meeting, explaining why he actually decided to sell this large stake in Apple. And we own Apple , which is an even better business. And we will own, unless something really extraordinary happens, we will own Apple, American Express and Coca-Cola when Greg takes over .
But I am not at all against increasing the cash position under the current conditions. I think when I look at the alternative of what's available in the stock markets, and I look at the makeup of what's going on in the world, we find it quite attractive. Yes, you heard it right here, friends. I promise there is no AI voice cloning in this video .
Warren Buffett himself has said that he wouldn't mind having more cash on hand at this point, given everything that's going on in the world. More cash. In their Q1 2019 report, which they released earlier that day, Berkshire noted that they had a record cash balance of $188.99 billion for the first quarter.
$189 billion in cash on the sidelines. That's literally the market capitalization of GM, FedEx, and Starbucks combined. This is pretty crazy. And there was a lot of speculation that came out of that, that Buffett indirectly just indicated that he didn't think the market was going to hold up that well for the next while.
Of course, Buffett would never confirm or deny this for sure, but from what he's said before, it definitely makes sense. He said he did it because he didn't mind accumulating cash at the moment because of the environment that's going on. I think the economic environment, the outlook for stocks. I mean, later I tried to get a little more information out of him with another question, but he didn't grab onto it, but what are you going to do with all that money?
Why do you need all this money? He says he can't find good places to put them, which makes him wonder if he thinks the entire market is overvalued. So there is a lot of speculation that Buffett sees some storm clouds ahead. But interestingly, being there at the meeting and hearing all of this gave me a little more insight into Buffett's likely motives for this move.
And, thinking about it, I think there are three points to this. Three points why Warren Buffett is not at all ready to gradually sell some of his Apple shares and now turn them back into cash. They number one, and biggest, take profits to avoid future potentially higher capital gains taxes, then second, keep more money aside in case of large insurance losses from increased and more severe weather events.
And third, the fact that he actually has a normal attitude towards cash. He's not really afraid to stay cash-strapped in this environment, especially with Treasury yields around 5 1/2%. But by far the main point he talked about the most at the meeting was the idea of actually making some profit now in anticipation of a significant increase in the corporate tax rate.
Listen to this. One thing that might surprise you is that we don't mind paying taxes in Bergkshire. We pay a 21% federal rate on the profits we make from Apple, and that rate was 35% not long ago, and in the past it was 52%. The federal government owns a portion of the profits from our business. They don't own the assets, but they own a certain percentage of the profits, and they can change that percentage any year.
And the percentage that they have set right now is 21%, and I would say that given the current fiscal policy, I think something needs to change. And I think higher taxes are quite likely, and the government wants to take a bigger share of your income, or mine, or the burgers, they can do that. And, uh, they might decide that someday they don't want the budget deficit to be that big, because it has some important consequences, and they might not want to make significant spending cuts, and they might decide that they'll take a larger percentage of what we earn, and we'll pay it.
I really hope that everything America has done for all of you shouldn't bother you that we're doing this. And if I do it at 21% this year and we do it at a higher percentage later, I don't think you 'll really mind the fact that, uh, we sold the little apple this year. Another quote from Buffett earlier in the meeting was: "The market exists not to teach you, but to serve you." And I think this quote underscores what Buffett is doing here.
With Apple stock near an all-time high, Warren is effectively preemptively locking in some of his high-estimate gains at a 21% tax rate because he believes the corporate tax rate will rise significantly in the future when the government really tries to address this huge pile of debt after a couple of decades of worsening deficits.
This is a really interesting bet because he essentially thinks that converting Apple stock to cash now and avoiding potentially higher tax rates, combined with the current yields on short-term Treasury bonds, is where that money is likely to end up. Well, these two factors together will somehow outperform Apple stock over the next short time.
This is really, really interesting. I don't know if I would personally make that bet, but it shows that Buffett doesn't see the best of times for corporate taxpayers or for the stock market. But beyond that, the second point why Buffett is so happy about locking in profits and returning to cash is his view that Bergkshire really needs to shore up its bank account to protect shareholders from potential future insurance losses.
And I know that sounds crazy, but it's actually true. I don't have a good video for you guys, but during the meeting Buffett mentioned several times about the increasing frequency of extreme weather events and the need for their insurance business to have a larger amount of money in just cash or short-term Treasury bonds right now so that they always protect Berkshire from, say, being wiped out in one fell swoop.
Because that's what you need to remember when reading these CNBC articles that say Buffett has $189 billion sitting on the sidelines. He honestly doesn't have that much to invest. He has said in the past that a very large portion of this amount should remain untouched in the event of insurance losses.
So the investment funds from this pile are actually much smaller. Yes, he can still make very significant investments. You can invest tens and tens of billions of dollars, but it's not quite 189 billion. So that brings us to the third and final reason why Buffett sold that block of Apple. And the reason is simply that, given that short-term U.S.
Treasury bonds actually yield a pretty decent return, it's actually not the worst idea to have some money set aside to reap that risk-free return. Berkshire is n't finding anything attractive in the stock market right now, but pumping cash through U.S. Treasury bonds isn't such a bad thing. You have $168 billion in cash, which you told us today is now over $182 billion .
His question: first: what is Buffett waiting for? And second: why not use at least some of them? Well, I think that's pretty easy to answer. I don't think anyone sitting at this table has any idea how to use them effectively, and that's why we're not using them right now at 5.4%. But we would n't use them if they were under 1%.
Don't tell that to the Federal Reserve. But perhaps you should think about it this way: Where would he invest the new money to overcome that 5% barrier... 5.4%. Yes. You should get more than the 5% you can earn in Treasury bonds in a very safe environment. Ultimately, Becky summed up Buffett's predicament quite well.
There is n't much on offer in the stock market, and Treasury bonds are yielding returns. Unlike in a very low interest rate environment, keeping cash afloat doesn't hurt as much right now. And Buffett, being an extremely patient investor , feels very comfortable turning Apple shares into cash and just holding on to them.
We only change the offers we like, things just aren't appealing, and there are certain ways that could change, and we'll see if that's the case . That , my friends, is why Warren Buffett sold a large portion of his Apple stock. I would love to hear your thoughts on this in the comments below. And if you want to join New Money Education and support the channel, remember the code burkshire 24.
This is a temporary code that we will remove in a few days. But take full advantage of it if you want. But other than that, guys, thanks a lot for your support, and I'll see you next time.
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