Warren Buffett, the head of Berkshire Hathaway, has experienced a considerable financial decline over the previous year. Renowned for his remarkable history in investing, Buffett misestimated the corporate tax rate in the U.S. At Berkshire Hathaway’s annual shareholders meeting in May, he conveyed his expectation that the corporate tax rate would increase.
This prediction affected the company’s strategy to divest a large number of shares in Apple throughout the past year. Nevertheless, the results of the recent election disproved Buffett’s prediction. The victory of President-Elect Donald Trump guarantees that the corporate tax rates will stay stable for a minimum of four years.
Throughout four consecutive quarters, Berkshire offloaded:
10,000,382 shares of Apple in Q4 2023
116,191,550 shares of Apple in Q1 2024
100,000,000 shares of Apple in Q3 2024
Considering Apple’s average share price during those quarters and its closing price of $227.48 per share on November 7, Buffett’s choices have resulted in Berkshire Hathaway losing nearly $21.2 billion in potential earnings.
Buffett’s error in tax rate prediction
This outcome stems from the significant value appreciation of Apple while Berkshire was reducing its ownership. Buffett’s approach relied on the belief that corporate tax rates would eventually escalate. However, the persistent low-tax climate has proven his judgment incorrect in this instance.
Despite this major financial drawback, Buffett continues to be a highly respected figure in the investing world. His readiness to act based on his principles has kept him in high regard within the financial community. Although Buffett’s mistake has caused a substantial financial blow to Berkshire Hathaway, it emphasizes the volatility of market variables and tax legislation.
Even the most accomplished investors occasionally encounter errors.
