There were many stories in the market chaos of last week.
One of the big ones was what the Sage of Omaha, Warren Buffet was up to…
Warren Buffett’s Berkshire Hathaway investment fund always releases its quarterly results on a Saturday and when it did so two weekends ago, it came as something of a shock. The reason for the shock was that Berkshire’s report showed Buffett cut his stake in Apple by HALF (selling about ~$75 billion worth of shares).
Not terribly helpful for already nervous markets. It potentially matters to us because Apple is the largest single holding in most of ebi’s (our preferred investment partner) portfolios. Portfolio Vantage Earth 60 has exposure to Apple of approximately 1.4%, for example.
But I want to talk about the unintended consequences.
BECAUSE Buffett has sold Apple shares, all of the major stock indices (S&P 500, MSCI USA, Russell 1000, etc etc) will have to INCREASE their weight to Apple. They’ll be buying about an extra $40bn* worth come September.
So, if you own any of the normal US trackers, you’ll be increasing your Apple holding in about a month.
You see, the rules governing stock indices** say that when big long-term investors hold a lot of shares, these shouldn’t be considered as publicly available to buy.
And the weights in indices are defined by what’s publicly available – what the likes of you and I can buy.
While Warren (the literal definition of a big, long-term investor) was holding his Apple shares, he effectively had removed them from play—only 96% of Apple was publicly available.
With most companies, that sort of rounding doesn’t matter.
But Apple is worth $3.3 trillion. So adding back in 4% is actually the same as adding a whole Goldman Sachs, or Disney, or Uber. It just goes to show how absolutely huge Apple really is!
Although Warren Buffet's sale of $75 billion of Apple is significant, the company's market cap of $3.3 trillion does put it into perspective.
The following chart looks at Apple’s share price since 14th August last year. The impact of last week’s market turmoil can plainly be seen, as can the recovery when others will have seen the fall in price as a buying signal. It’s also worth noting that the share price is still up over 24% since this time last year.
In summary, when looked at in the proper context, the answer to the question posed in the title is no, we shouldn’t be worried.
*200 million shares, as per Piper Sandler research
**20 pages of rules for you here 😉 - https://www.spglobal.com/spdji/en/documents/index-policies/methodology-sp-float-adjustment.pdf
I hope you found the above interesting. As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
