When investing great Warren Buffett speaks, Wall Street wisely listens. Since ascending to the CEO chair at Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) in the mid-1960s, he's overseen an aggregate return in his company's Class A shares (BRK.A) of more than 5,580,000%, as of the closing bell on Nov. 7.
Nearly doubling the average annual total return, including dividends paid, of the S&P 500 is bound to get you noticed by the investing community. This is why so many investors wait on the edge of their seats for Berkshire's quarterly filed Form 13F, which lays out which stocks the Oracle of Omaha and his top advisors, Todd Combs and Ted Weschler, purchased and sold in the latest quarter. Riding Buffett's coattails has been a successful investment strategy for decades.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
But even the most successful money managers can be wrong from time to time. Amid Buffett's extensive track record of success are sprinkled some failed investments and missed opportunities. This includes missing out on billions in future gains in Walt Disney, swinging and missing on media giant Paramount Global, dumping Berkshire's previously sizable stake in Wells Fargo following its checking account scandal, and taking a $444 million loss on grocery chain Tesco.
While Warren Buffett's list of successful calls is a mile long, Election Day cemented one of his recent forecasts as incorrect -- and it's cost the Oracle of Omaha a small fortune thus far.
President-Elect Donald Trump's victory has broad-reaching implications for stocks
In the early morning hours on Wednesday, Nov. 6, the Associated Press declared 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-fueled Nasdaq Composite galloping higher by 138%.
But as with all changes in the Oval Office, there are question marks. For example, Wall Street wonders how effective Trump will be in tackling America's rapidly rising 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 institute 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% from all other nations.
Former President and current President-Elect Donald Trump addressing reporters. Image source: Official White House Photo by Joyce N. Boghosian.
While tariffs should, on paper, improve the price-competitiveness of American-made goods and reduce federal trade deficits, they can also increase 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 that the prospect of corporate income tax rate hikes, which Democratic Party presidential nominee Kamala Harris touted, is firmly off the table. The Tax Cuts and Jobs Act, signed into law during Donald Trump's first term as president, permanently reduced the corporate income tax rate from 35% to 21%.
Warren Buffett's wager on a higher corporate income tax rate has been a costly one
While many of America's largest and most influential businesses should benefit from the corporate income tax rate remaining at an eight-decade low, President-Elect Trump's victory cemented one recent forecast of Warren Buffett's as incorrect. During Berkshire Hathaway's annual shareholder meeting in May, the Oracle of Omaha opined that the corporate income tax rate would climb at some point in the future. Therefore, locking in some of Berkshire's massive unrealized gains in Apple(NASDAQ: AAPL) at an advantageous tax rate would be viewed favorably by investors. Said Buffett:
It doesn't bother me in the least to write that check and I would really hope with all that America's done for all of you, it shouldn't bother you that we do it. And if I'm doing it at 21% this year and we're doing it a little higher percentage later on, I don't think you'll actually mind the fact that we sold a little Apple this year.
The problem with Buffett's forecast is that the corporate tax isn't going to climb for at least four more years. Meanwhile, Apple's stock has meaningfully appreciated while the Oracle of Omaha and his team have been sellers for four consecutive quarters. Based on 13Fs and Berkshire's latest quarterly operating report, Buffett sold:
- 10,000,382 shares of Apple in Q4 2023
- 116,191,550 shares of Apple in Q1 2024
- 389,368,450 shares of Apple in Q2 2024
- 100,000,000 shares (est.) of Apple in Q3 2024
The 100 million shares sold in the September-ended quarter are based on Berkshire listing its Apple position as having a fair value of $69.9 billion. Based on Apple's share price on Sept. 30, this would translate into a 300-million-share position, which is down 100 million shares from where Buffett's company closed out the June quarter.
Taking into account the average share price for Apple's stock during each of the four quarters listed above, as well as Apple's closing price of $227.48 per share on Nov. 7, Buffett's decision to sell for tax purposes has caused Berkshire Hathaway to miss out on close to $21.2 billion in gains.
Admittedly, I don't blame the Oracle of Omaha one bit for reducing his exposure to Apple. Sales of the company's physical products, including the iPhone, have stalled or gone backward over the last two years. Further, its share price appreciation has the company valued at an aggressive multiple of 31 times forecast earnings per share (EPS) for fiscal 2025 (ended Sept. 30, 2025).
However, the justification for reducing Berkshire's stake in Apple by two-thirds over the last year for tax purposes has, thus far, been a very costly mistake.
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Wells Fargo is an advertising partner of Motley Fool Money. Sean Williams has positions in Wells Fargo. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Walt Disney. The Motley Fool recommends Tesco Plc. The Motley Fool has a disclosure policy.
