Why "halve" Apple? Buffett's rule for buying tech stocks: sell if it exceeds 30 times!

Recently, Buffett significantly reduced his holdings in Apple, with cash holdings reaching a new high, attracting attention. Musk also expressed his views and took the opportunity to criticize the Federal Reserve.

This week, Musk responded to a post on X:

He (Buffett) obviously expected some form of pullback, or he just couldn't see a better investment than U.S. Treasury bonds.

The Fed needs to cut interest rates, they are really too foolish if they don't.

Although Buffett has praised Apple many times, the current scale of reduction has shocked the market. It is well known that Buffett is famous for his value investing philosophy, and valuation may be one of the factors in his decision.

At the 2024 shareholder meeting, Buffett said Apple is "very likely" to remain Berkshire's largest holding by the end of 2024, and it is a better company than American Express or Coca-Cola.

Wall Street investment bank Bernstein pointed out that despite Buffett's public praise of Apple, he has always been quite sensitive to valuation, increasing positions when the P/E ratio is close to 20 times, and reducing them when it exceeds 30 times.

Historically, in the technology sector, once Buffett starts reducing positions, he usually sells off quite quickly. Buffett almost completely cleared his position in IBM in four quarters and completely exited his position in HP in three quarters.

For Apple, he has also shown clear sensitivity to valuation, building most of his position when the P/E ratio is below 15 times, selectively increasing when it is 20 times or below, and reducing when it is above 30 times. Apple's average P/E ratio in the last quarter was 30 times.

As of the end of the second quarter, Buffett still holds 395 million shares of Apple, with the company's average daily trading volume of about 60 to 70 million shares. His second largest position is Bank of America, with $41 billion. Therefore, if he reduces Apple's position to the same size as Bank of America by the end of the year, it will be roughly equivalent to 2% of the stock's daily trading volume, and Buffett's selling scale in the last quarter was equivalent to 8% of Apple's trading volume.

In addition, Bernstein also warned that the market's concerns about Apple include not only Buffett's 50% reduction in holdings but also the U.S. Department of Justice's ruling on Google's monopoly, as well as general concerns about economic recession and tech stock valuations