When Warren Buffett speaks, Wall Street wisely listens. Since he rose to CEO chairman at Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) In the mid-1960s, he oversaw a total return on his company’s Class A shares (BRK.A) of more than 5,580,000%, as of the closing bell on November 7.
Nearly doubling the average annual total return, including dividends paid, of the S&P500 is sure to get you noticed by the investing community. This is why so many investors are waiting on the edge of their seats for Berkshire’s quarterly Form 13F filing, which details which stocks the Oracle of Omaha and his top advisors, Todd Combs and Ted Weschler, bought and sold in the last quarter . Riding Buffett’s coattails has been a successful investment strategy for decades.
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Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.
But even the most successful money managers can get it wrong from time to time. Amidst Buffett’s extensive track record of success, some failed investments and missed opportunities are mentioned. This includes missing out on billions in future profits Walt Disneyswinging and missing on media giant Big globalwith Berkshire’s previously significant interest in Wells Fargo after the checking account scandal and a $444 million loss on the supermarket chain Tesco.
While Warren Buffett’s list of successful calls is a mile long, Election Day has proven one of his recent predictions incorrect — and it’s cost the Oracle of Omaha a small fortune so far.
In the early morning hours of Wednesday, November 6, the Associated Press declared that Donald Trump had won the presidency. During President-elect Trump’s first term in the Oval Office, all three major stock indexes soared, with the growth-driven Nasdaq Composite gallops higher at 138%.
But like all changes in the Oval Office, there are question marks. Wall Street, for example, is wondering how effective Trump will be in tackling the rapidly rising US national debt. While this isn’t an immediate problem for stocks and the U.S. economy, the federal deficit is something that needs to be addressed sooner rather than later.
On a more stock-specific basis, there are concerns about Donald Trump’s proposal to impose tariffs on goods imported into the United States. President-elect Trump campaigned on the idea of applying a 60% tariff on goods imported from the world’s second-largest economy, China, and up to 20% on all other countries.
Former President and current President-elect Donald Trump speaks to reporters. Image source: Official White House photo by Joyce N. Boghosian.
While tariffs should on paper improve the price competitiveness of U.S. goods and reduce federal trade deficits, they could also raise prices for consumers and businesses and worsen trade relations between the U.S. and other countries.
Arguably the only certainty of Trump’s second term is the prospect of corporate tax rate increases Democratic Party presidential candidate Kamala Harris was toutedis definitely off the table. The Tax Cuts and Jobs Act, signed into law during Donald Trump’s first term as president, permanently lowered the corporate tax rate from 35% to 21%.
While many of America’s largest and most influential companies should benefit from corporate taxes remaining at their lowest levels in eight decades, President-elect Trump’s victory has confirmed a recent prediction that Warren Buffett’s was incorrect. At Berkshire Hathaway’s annual shareholder meeting in May, the Oracle of Omaha opined that the corporate tax rate would rise at some point in the future. Therefore, some of Berkshire’s huge unrealized profits are being captured Apple(NASDAQ: AAPL) would be viewed favorably by investors at an advantageous tax rate. said Buffett:
It doesn’t bother me at all to write that check and I really hope that despite all that America has done for all of you, it shouldn’t bother you that we’re doing it. And if I do it at 21% this year and we do it at a slightly higher percentage later, I don’t think you’ll mind that we sold a little bit of Apple this year.
The problem with Buffett’s prediction is that corporate taxes won’t increase for at least four years. Meanwhile, Apple shares have risen significantly in value, while the Oracle of Omaha and his team have been sellers for four consecutive quarters. Based on 13Fs and Berkshire’s latest quarterly report, Buffett sold:
10,000,382 Apple shares in the fourth quarter of 2023
116,191,550 Apple shares in the first quarter of 2024
389,368,450 shares of Apple in the second quarter of 2024
100,000,000 shares (estimated) of Apple in Q3 2024
The 100 million shares sold in the quarter ended September are based on the listing of Berkshire’s Apple position at a fair value of $69.9 billion. Based on Apple’s stock price on September 30, this would translate to a position of 300 million shares, down 100 million shares from where Buffett’s company ended the June quarter.
Taking into account the average share price of Apple’s stock during each of the four quarters mentioned above, and Apple’s closing price of $227.48 per share on November 7, Buffett’s decision to sell for tax purposes has caused Berkshire Hathaway to miss out on the closing price . up to $21.2 billion in profits.
Granted, I don’t blame the Oracle of Omaha in any way for reducing his exposure to Apple. Sales of the company’s physical products, including the iPhone, have stalled or declined over the past two years. Furthermore, the rise in share price has valued the company at an aggressive multiple of 31 times expected earnings per share (EPS) for fiscal 2025 (ending September 30, 2025).
However, the justification for reducing Berkshire’s stake in Apple by two-thirds for tax purposes over the past year has so far been a terribly costly mistake.
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Wells Fargo is an advertising partner of Motley Fool Money. Sean Williams has positions at Wells Fargo. The Motley Fool holds positions in and recommends Apple, Berkshire Hathaway, and Walt Disney. The Motley Fool recommends Tesco Plc. The Motley Fool has a disclosure policy.
Warren Buffett’s prediction turned out to be wrong – and it cost him $21 billion last year. was originally published by The Motley Fool
