Warren Buffett is widely – and correctly – considered to be the greatest investor of all time. As a consequence, it’s almost heresy to say anything bad about him or Berkshire Hathaway (BRK.A/BRK.B). Nevertheless – and I hate to say it – it is now time to take profits in the stock.
Berkshire is a $725 billion conglomerate with two mains parts: a stock portfolio and operating businesses. About half of the stock portfolio now consists of a $150 billion stake in Apple (AAPL). (The three other biggest holdings – with a market value of almost $100 billion – are Bank of America (BAC), American Express (AXP) and Coke (KO)).
AAPL is a legendary company but with a market cap of almost $3 trillion and a trailing P/E approaching 30x, I see little upside. “The law of large numbers starts to get in the way”, said Bill Smead of Smead Investment Management (“Berkshire Hathaway Net Earnings Rose 11% in Fourth Quarter”, Justin Baer, WSJ B1, Monday February 28 [SUBSCRIPTION REQUIRED]).
Berkshire’s operating businesses consist of five main segments: Insurance, the railroad Burlington Northern Santa Fe, Energy, Manufacturing and Retail and Services. To quote Bill Smead again: “It’s an All-In bet on the US economy”. The operating businesses had income before taxes of $32 billion in 2021.
As I said at the start, Warren Buffett is the greatest investor of all time. I have spent many hours reading about him, have learned a lot from him and count myself a great admirer. I would never wish him anything but the best. But he’s going to be 92 years old on August 30 and there is – rightly – a “Buffett Premium” of ~15% in the stock in my opinion.
Buffett started his initial partnership in 1956 and it would have been wrong to bet against him at any point during his 66 year career. It seems crazy to say that now is the time. Alas: “Nothing gold can stay”.