One of Greg Abel's Forever Holdings at Berkshire Hathaway Is Breaking Warren Buffett's Most Important Investing Rule

On Dec. 31, billionaire Warren Buffett hung up his work coat for the final time as Berkshire Hathaway‘s (BRKA +0.10%)(BRKB +0.06%) CEO (though he remains chairman of the board) and handed the baton to his successor, Greg Abel. During the Oracle of Omaha’s more than half-century as CEO, Berkshire’s Class A shares (BRKA) returned nearly 6,100,000%!

Abel, who’s been with Berkshire for over a quarter-century, has vowed to employ the same investing principles that made Warren Buffett successful. Oftentimes, this means seeking out investment opportunities with sustainable moats, strong management teams, and rock-solid capital-return programs.

But you might be surprised to learn that one of Abel’s “forever” holdings, Apple (AAPL 0.49%), is currently violating what’s arguably Buffett’s most important investing rule.

Value is of the utmost importance — and this core holding isn’t offering it

Throughout Buffett’s tenure as Berkshire Hathaway CEO, he bent or broke several of his unwritten investing rules. For instance, he piled into Activision Blizzard stock in early 2022 as a short-term acquisition arbitrage play even though he’s a long-term investor at heart.

However, Berkshire’s now-former boss was unwavering when it came to value. He always wanted a good deal with buying or holding stakes in public companies. Even if a company had a great product/service, loyal customers, and a strong management team, he wasn’t a buyer if the valuation didn’t make sense.

In 2024, Buffett outlined eight holdings he felt were indefinite, including Coca-Cola, American Express, Occidental Petroleum, and all five Japanese trading houses. In Abel’s first annual letter to shareholders, he added Moody’s and Apple to the mix.

Although Apple offers the largest share repurchase program on the planet — $841 billion spent to buy back its stock since 2013 — and has an exceptionally loyal customer base, its stock isn’t cheap.

Apple’s growth engine stalled and exposed a historically expensive market leader

From fiscal year (FY) 2022 through FY 2024, Apple’s sales growth ground to a halt. Though its subscription services segment continued to thrive, revenue from its physical devices, including iPhone, iPad, and Mac, floundered.

As of the closing bell on April 10, Apple shares were trading at 33 times trailing 12-month earnings per share (EPS). To put this figure into context, Apple was consistently trading at 10 to 15 times EPS when Warren Buffett began building Berkshire’s stake in the company in the first quarter of 2016. The value proposition that attracted Buffett to Apple simply isn’t there right now.

AAPL PE Ratio data by YCharts. PE Ratio = price-to-earnings ratio.

Although Apple’s artificial intelligence (AI) ties, through the integration of Apple Intelligence into its physical devices, have lit a fire under its stock in recent quarters, Berkshire’s now-former boss wasn’t shy about sending shares to the chopping block prior to retiring. In the nine quarters leading up to Buffett’s departure, approximately 75% of this stake (687.6 million shares) was sold.

While Abel sees Apple as a multidecade compounder, it doesn’t alter the fact that it’s historically pricey. Buffett may not be steering the ship on a day-to-day basis any longer, but it wouldn’t be a surprise if Berkshire’s Apple position shrank further in the coming quarters, courtesy of its new leader, Greg Abel.