Whenever an insider or large shareholder sells a big position, investors should take notice.
In the last quarter, Berkshire Hathaway (BRK.A) disclosed that it sold almost half of its stake in Apple (AAPL). Its holding fell from $135.4 billion in Q1 to $84.2 billion by the end of Q2. Despite reaffirming its confidence in Apple at its annual Berkshire meeting, the firm said that AAPL stock will remain its biggest holding by the end of this year.
Shareholders do not need to panic. Apple stock has limited downside since management will buy back up to $110 billion. This prevents Berkshire’s sales from flooding the stock market with excess shares.
Risks
Berkshire might know something that retail investors do not. The firm may view AAPL stock as fully valued with limited upside from here. Warren Buffett prefers to hold more cash when stock markets trade at a premium valuation. He may have plans to wait for better opportunities in the technology sector before buying stocks.
Ordinary investors are unlikely to have the same skill of timing a market dip. Conversely, Buffett signals that holding cash to earn interest income is safer than continuing its overweight position in Apple stock.
The Apple stock sale will trigger a meaningful tax bill for Berkshire shareholders.