July 20, 2024
Investment

71% of Warren Buffett’s $358 Billion Portfolio Is Invested in Only 4 Stocks


If you’ve ever wondered why professional and everyday investors pay so much attention to Berkshire Hathaway (BRK.A -1.06%) (BRK.B -1.25%) CEO Warren Buffett, look no further than his investing track record since becoming CEO in the mid-1960s. Over this nearly six-decade stretch, he’s overseen an aggregate return in his company’s Class A shares (BRK.A) of better than 4,480,000%, as of the closing bell on Jan. 5. That type of return will get a money manager noticed on Wall Street.

The Oracle of Omaha’s not-so-subtle secrets to success have been well documented and include a penchant for buying brand-name, profitable businesses with strong moats that have trusted management teams. But the one factor above all others that’s done most of the heavy lifting for Berkshire Hathaway over time is its highly concentrated investment portfolio.

A jubilant Warren Buffett at Berkshire Hathaway's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Both Warren Buffett and his late right-hand man Charlie Munger firmly believed that their top investment ideas should have added weighting in Berkshire’s investment portfolio. As of the end of the first week of the new year, a whopping 71% ($254 billion) of Warren Buffett’s $358 billion portfolio was invested in only four stocks.

Apple: $165,881,230,011 (46.3% of invested assets)

Although Buffett’s company entered the new year holding stakes in 49 stocks, it’s plainly evident that portfolio concentration in top ideas is a key strategy. As of the closing bell on Jan. 5, more than 46% of the investment portfolio the Oracle of Omaha oversees at Berkshire was put to work in Apple (AAPL -0.32%).

During Berkshire Hathaway’s annual shareholder meeting in May 2023, Buffett remarked that Apple is “a better business than any we own.” The catalysts behind this statement include Apple’s exceptionally strong brand, incredible customer loyalty, cutting-edge innovation, and trusted management team.

In particular, innovation is what’s fueled Apple to a valuation that recently topped $3 trillion. It’s been the leading developer of smartphones for more than a decade and is the undisputed smartphone leader by market share in the United States.

To build on this point, CEO Tim Cook is overseeing a multiyear transition that has Apple focused on subscription services. While the company isn’t pushing aside the physical products (iPhone, iPad, and Mac) that endeared it to consumers, it’s expanding its platform to further strengthen the loyalty of its customers while bolstering its operating margin and cash flow.

However, the greatest thing about Apple might just be its capital-return program. It offers the second-largest nominal-dollar dividend among U.S. public companies ($15 billion/year), and it’s repurchased around $600 billion worth of its common stock since the start of 2013. Warren Buffett absolutely loves when businesses buy back their stock and increase Berkshire’s ownership stake in a company without he or his investment team having to lift a finger.

Bank of America: $35,561,094,567 (9.9% of invested assets)

Even though it’s a far cry from the nearly $166 billion invested in Apple, the more than $35 billion Buffett and his team have put to work in Bank of America (BAC -1.34%) is no drop in the bucket. As of Jan. 5, BofA accounted for just shy of 10% of Berkshire’s $358 billion investment portfolio.

There are a lot of things that make Warren Buffett’s portfolio tick. One of those factors is a tendency to invest in cyclical businesses — i.e., those that ebb and flow with the health of the U.S. or global economy. Bank stocks like BofA certainly fit the bill.

Recessions are a perfectly normal and expected aspect of the economic cycle. At the same time, they’re also short lived, at least based on what history tells us.

Only three of the 12 recessions since the end of World War II have lasted at least a year, with none of the remaining three surpassing 18 months. Meanwhile, there have been two expansions that endured at least a decade over the same timeline. Companies like Bank of America can take advantage of long-winded expansions by steadily growing their loan/lease portfolios over time.

Something unique about BofA that probably caught the Oracle of Omaha’s eye is its interest rate sensitivity, relative to other large banks. When the nation’s central bank adjusts interest rates, no bank will see a more sizable change to its net interest income than Bank of America. The most aggressive rate-hiking cycle in over four decades has been adding billions of dollars in net interest income to BofA’s bottom line each quarter.

Bank of America is also trading close to its book value. Buying stakes in well-run banks at or slightly below their book value has often been a smart move for investors.

A person holding a gold American Express business credit card in their right hand.

Image source: American Express.

American Express: $28,663,518,942 (8% of invested assets)

This is probably as good a time as any to mention that Warren Buffett and his “investing lieutenants,” Todd Combs and Ted Weschler, love the financial sector. There’s probably not another sector of the market Buffett has a better grasp on — and it’s precisely why credit-services provider American Express (AXP 0.03%) has been a continuous holding since 1991.

The bull thesis for AmEx shares some similarities with Bank of America. Namely, extended periods of growth for the U.S. economy are good news. Long periods of expansion will fuel consumer and enterprise spending for the third-largest payment processor in the U.S. by credit card network purchase volume.

But what really helps American Express stand out is its ability to generate income from both sides of a transaction. On top of being a key payment processor and collecting fees from merchants, AmEx acts as a lender for consumers and businesses. This allows it to generate fee and interest income on its cardholders and effectively double-dip during lengthy economic expansions.

The downside to this strategy is that it exposes American Express to credit delinquencies and loan losses during recessions. However, AmEx has an ace up its sleeve: It primarily targets high earners as cardholders. People with higher incomes are less likely to alter their purchasing habits or fail to pay their bills during minor economic disruptions.

After more than three decades of owning shares of American Express, Buffett’s company is also netting a hearty dividend. Thanks to a cost basis of roughly $8.49 per share in AmEx, Berkshire is enjoying an annual yield to cost of better than 28%.

Coca-Cola: $23,868,000,000 (6.7% of invested assets)

The fourth stock that, collectively with Apple, Bank of America, and American Express, accounts for 71% of the $358 billion portfolio overseen by Warren Buffett at Berkshire Hathaway is beverage behemoth Coca-Cola (KO -0.65%). This is the 36th consecutive year Buffett’s company has held a stake in Coca-Cola, which makes it Berkshire’s longest-tenured holding.

The best aspect of consumer staples stocks like Coca-Cola is their operating predictability. Though demand for discretionary items can rise and fall with the health of the U.S. and global economy, demand for basic need goods, such as food and beverages, remains relatively constant in any economic climate.

Furthermore, this is a company that enjoys virtually unparalleled geographic diversity. Except for North Korea, Cuba, and Russia, Coke has operations ongoing in every other country. This allows it to generate predictable operating cash flow in developed markets, while lifting its organic growth rate via emerging markets. Coca-Cola’s product portfolio currently consists of 26 brands, generating north of $1 billion in annual sales.

Credit should also be given to Coca-Cola’s marketing team, which has seamlessly shifted its focus to digital channels and utilized artificial intelligence (AI) to tailor advertisements to younger audiences. Don’t forget that Coke has historic ties to the holiday season, along with well-known brand ambassadors, which can help it engage more mature consumers.

The icing on the cake with Berkshire’s investment in Coca-Cola is its yield relative to cost. Buffett’s company has a cost basis of $3.2475 per share in Coca-Cola, and Coke has raised its payout for 61 consecutive years. All told, Berkshire is netting an annualized yield to cost of almost 57%!



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