Check out the brand-new podcast with Porter Stansberry and me; Warren Buffett sells half his Apple stake; Berkshire Hathaway's second-quarter earnings; My parents are in town from Kenya

1) My friend Porter Stansberry – the founder of Stansberry Research – and I have just launched a new monthly podcast...

We're calling it Power Law Investing. In it, we'll do in-depth dives into the world's greatest businesses – the ones investors want to own because of the "power law," by which only a small percentage of companies create nearly all of the economic value over time.

We'll discuss the core drivers behind incredible global brands... and we'll cover the history, investment potential, and shareholder value of the stocks to own "forever."

In our first two-hour episode, we take a close look at one of our all-time favorite businesses: McDonald's (MCD).

In addition to our deep dive into the company, I also discuss how my 2003 purchase of the stock turned into one of my best-performing investments... and Porter shares the specific price he would be willing to pay for the stock in the event of another financial crisis or market downturn.

This inaugural episode sets the tone for our great discussions to come. Looking ahead, each month we'll share the names of companies that generate incredible returns that listeners can add to a watchlist as opportunities emerge.

You can listen to this brand-new episode on the website of Porter's firm, Porter & Co., here... or on YouTube here (the latter also has the transcript).

Enjoy!

2) Speaking of "power law" companies...

Berkshire Hathaway (BRK-B) reported its second-quarter earnings on Saturday (you can see the press release here and full 10-Q here).

The bombshell news is that Warren Buffett sold about half of his massive stake in Apple (AAPL) during the quarter.

I was wondering when Buffett was going to do this...

Apple accounted for roughly 44% of Berkshire's stock portfolio (which, in turn, accounted for 42% of Berkshire's market cap, which as of Friday's close sat at more than $920 billion). This graphic from Visual Capitalist shows how oversized the position had become (as of the first quarter):

The chart below shows how extraordinarily well Apple has done – nearly a 10-bagger – since Buffett first started buying it in the first quarter of 2016:

I think it's a good sale, for risk management and diversification. In addition, it will likely be difficult for Apple's stock to outperform going forward for three main reasons:

• The company is so large that growth becomes increasingly difficult.
• With a more than $3.4 trillion market cap (as of Friday's close), share repurchases won't move the needle as much.
• As of Friday's close, the valuation is high. At 33.5 times trailing earnings, it's the highest level in 16 years.

No doubt Buffett remembered a previous time when his largest position reached nosebleed valuation levels: Coca-Cola (KO). At his 2006 annual meeting, he said:

The stock got to what, in retrospect, clearly was a ridiculous level [in 1998]...

So it strikes us as a really wonderful business that sold at a very silly price some years back.

And you can definitely fault me for not selling the stock. I always thought it was a wonderful business, but clearly, at 50 times earnings, it was a silly price on the stock.

This 30-year price chart of Coca-Cola shows what Buffett was lamenting:

And now, many investors are wondering whether Buffett decided to sell so much of his Apple stake because he sees the economy slowing and/or expects the market to fall.

I doubt it... because otherwise, he perhaps would have sold 75% – or even 100% – of his stake.

I think this is nothing more than Buffett learning from his mistake with Coca-Cola and reducing a richly valued, oversized position. The Apple sale still leaves Buffett with about 400 million shares worth roughly $84.2 billion as of the end of the second quarter... so he clearly still believes that it's a wonderful company with great economics and a bright future.

Berkshire's cash hoard now sits at a mind-boggling $276.9 billion (plus $16.8 million in bonds), which is now earning respectable short-term interest rates in the 4% to 5% range. This chart, courtesy of Creative Planning's Charlie Bilello from a post on X on Saturday, shows how much Berkshire's cash pile has grown since 2010:

As of Friday's close, Berkshire's cash hoard is equal to 30% of its market cap. As this chart from Business Insider via The Compound shows, that's at the high end of historical levels... but certainly isn't unprecedented:

Turning to Berkshire's wide range of businesses, operating earnings rose a healthy 15.5% in the second quarter thanks to a surge in profits – both from underwriting and investment income – in its massive, diversified insurance segment.

But in this table from the second-quarter earnings press release, note that the other segments showed modest year-over-year earnings declines for the quarter (the dollar figures are in millions):

Meanwhile, Buffett only repurchased $345 million of stock in the quarter. That's the lowest level since he began buying back shares in the third quarter of 2018, as you can see in this chart:

I wouldn't read too much into a single quarter of minimal share buybacks, though clearly Buffett doesn't believe the stock is significantly undervalued.

I tend to agree...

Berkshire is only slightly undervalued today, but it remains the safest large-cap company in the world and continues to grow strongly... so investors should be very comfortable continuing to hold the stock.

3) My parents flew in from Kenya on Thursday!

On Saturday, the four of us (plus the dogs Rosie the Wonder Dog and Phoebe the Wonder Pup) and all of our stuff squeezed into our car... and my wife Susan "the Chauffeur" drove us nearly five hours to our extended family's house on Lake Sunapee, New Hampshire.

Susan and I will spend the next two weeks here (our oldest daughter arrives today and our younger ones come Saturday for a week), and my parents will stay until early November. (I posted more pictures of what we've been up to with them in town on Facebook here.)

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.