Buffett’s Biggest Mistake

When billionaire investor Warren Buffett sat down with Microsoft founder Bill Gates for a talk at the University of Washington Business School in 1998, investors eagerly awaited advice from the two highly successful leaders.

While both men gave salient insights, one of the most intriguing comments Buffett made was that his biggest mistakes had been mistakes of omission, not commission.

“I’ve made all kinds of bad decisions that have cost us billions of dollars,” Buffett said. “I don’t worry about not buying Microsoft, because I didn’t understand that business. But there are businesses that I did understand-Fannie Mae was one that was within my circle of competence. I made a decision to buy it, and I just didn’t execute. We would’ve made many billions of dollars. But we didn’t do it.”

Despite his mistakes, things have worked out for Buffett–his firm, Berkshire Hathaway, is inching closer to a $1 trillion market capitalization, and the company has an eye-popping $276.9 billion in cash and cash equivalents. However, a large portion of Berkshire’s cash stockpile has come from substantial recent stock selloffs.

Buffett’s most important stock reduction was the $90 billion sale of 390 million Apple (NASDAQ: AAPL) shares, and his timing might seem bewildering. Though Apple hasn’t had the AI hype of many of its big-tech rivals this year, the company is launching AI into its ecosystem this fall, and it has consistently beaten earnings estimates.

Did Warren Buffett Sell Apple Stock Too Soon?

No one can time the market, including Warren Buffett, but selling too soon is a common investing mistake. At one point, Buffett enjoyed roughly 10% of Apple’s economics, so for every $1 Apple earned, Buffett essentially realized $0.10.

After his Apple selloff, Buffett’s share has been cut in half. While that is a significant drop, Apple is still Berkshire Hathaway’s largest holding, comprising 30% of the firm’s portfolio.

AAPL has started to pick up steam after a dismal first half of the year, and it’s now up 16.5% year-to-date. That increase is partly due to anticipation for the fall release of Apple Intelligence, the suite of AI features that includes a supercharged Siri, as well as image generation, automated email, and photo-editing tools.

The company also plans to charge users between $10 and $20 for the Apple Intelligence suite, a model that could prove to be extremely lucrative for the tech giant. Apple’s ecosystem has been one of the company’s strongest attributes, and Apple hit an all-time high in services revenue in Q3 2024.

After the highly successful recent launch of the new iPad, Apple has 2.2 billion active devices and 1 billion paid subscriptions.

AI could be a powerful addition to the company’s subscription model because it learns more about a user with every interaction, allowing Apple Intelligence to provide a highly personalized experience that will only exist on Apple devices.

Will Apple Stock Go Back Up?

In addition to its future potential, Apple has achieved solid financial results. The company beat revenue and earnings expectations in each of the past four quarters, including the third quarter of 2024.

Apple’s Q3 revenue of $85.78 billion was 5% higher than last year, and it also beaten analysts’ expectations of $84.53 billion by 1.66%.

However, iPhone sales were down 1% year-over-year, which has been a concerning trend for the company. Still, third-quarter iPhone revenue of $39.3 billion beat the $38.81 billion that experts predicted.

The tech giant’s Q3 net income of $21.45 billion meant Apple reported diluted earnings per share of $1.40, which was 4.36% better than the $1.35 that analysts expected.

What Do Analysts Say About Apple Stock?

Buffett’s decision might seem more puzzling after consecutive successful quarters and the upcoming launch of a highly anticipated product.

In addition, Buffett’s move is contrary to the consensus among Wall Street analysts. Out of 49 analysts who have rated the stock, 34 believe AAPL is a buy at this price point.

Nine analysts believe the stock can outperform the market over the next year, and the highest price target for AAPL is $300, a 38.7% increase from where the stock currently trades. The average price target is $241.15, which represents an 11.5% increase over the next year.

There are 13 Hold ratings and two sell ratings on AAPL. The lowest forecast has the stock dropping 14% over the next 12 months to $186.

Is Apple Stock Undervalued?

Wall Street analysts clearly believe the stock is a buy at Apple’s current valuation. The tech giant’s price-to-earnings multiple of 32.9, is far less than Nvidia’s 61.3 P/E, and lower than both Microsoft and Amazon.

Apple recently increased its dividend, and its annual dividend yield is now 0.47%, amounting to a $0.25 quarterly payout for its shareholders.

What Is Buffett’s Biggest Mistake?

Warren Buffett claims his biggest mistakes are acts of omission, not commission, meaning not buying things that he knew well and had high confident would rise in value.

Was selling Apple an example of that? Probably not because he invested so heavily back in 2016, but will he miss out on future economics?

It’s not clear why Buffett sold Apple, but there are any number of reasons. It could simply be that Buffett wanted to rebalance his portfolio to reduce the emphasis on one stock, though a heavy Apple concentration never seemed to bother him before.

In interviews he has cited concerns that taking gains in the future will net him less cash as tax rates rise.

Perhaps Buffett has identified a better opportunity elsewhere. He has been repurchasing billions in Berkshire Hathaway stock over the past few quarters, and Buffett could feel his own firm’s stock is a better investment than Apple. Or he could be waiting to take a stake in another stock.

In the past, Buffett has admitted that certain tech stocks have been outside of his “circle of competence.” He said he didn’t understand Google until he realized that Berkshire-owned GEICO was spending a fortune in advertising on the site. Buffett also missed out on Amazon, taking a stake in IBM instead.

It’s a possibility that Buffett doesn’t fully understand the impacts Apple Intelligence can deliver. Or perhaps Buffett doesn’t believe AI will impact Apple’s bottom line significantly, and has decided to move on.

Whatever his reasoning, if the Apple selloff turns out to be a mistake Buffett won’t be significantly impacted-he can still enjoy the gains from the almost 400 million Apple shares he still owns.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.