A whopping $253 billion of Berkshire Hathaway's $372 billion investment portfolio can be traced to four historic brand names.
Wall Street is a genuine long-term wealth creator, and few wealth managers know this better. berkshire hathaway (BRK.A 0.64%) (BRK.B 0.54%) CEO Warren Buffett. Since taking over the reins of Berkshire almost 60 years ago, the aptly named “Oracle of Omaha” has achieved a total return of 4,913,549% on his company's Class A stock (BRK.A) and paid This effectively doubled the annual total return including dividends received.broad based S&P500.
Warren Buffett's “recipe” for success is no secret. Time and time again, he has been happy to share the traits and characteristics he looks for in the businesses he invests in. The Oracle of Omaha and his closest investment aides, Ted Weschler and Todd Combs, are often seen adding brand names. Incorporate established companies into Berkshire's portfolio.
Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.
But what's also worth noting is how important portfolio concentration has been to Berkshire Hathaway's long-term success. The company's top investors, which until his recent death included the great Charlie Munger, had long believed that their best ideas deserved more weight.
As of the closing bell on April 12, 2024, 68% ($253.2 billion) of the $372 billion portfolio Warren Buffett oversees at Berkshire Hathaway was invested in just four stocks.
Apple: Market capitalization $159,876,617,000 (42.9% of invested assets)
If you have any doubts that Buffett and his team like to bet big on the strongest investment ideas, look no further than tech stocks. apple (AAPL -0.57%). Despite Berkshire Hathaway's stake in 45 stocks and two index funds, nearly 43% of its assets are held in Apple.
Mr. Omaha's love for Apple was made public at Berkshire's annual shareholder meeting last May, when Buffett commented that Apple was “as good a company as any we own.” That's a particularly powerful statement considering his company wholly owns about 50 businesses, including insurance company GEICO and railroad BNSF.
One element that helps tick all the right boxes for Apple is a top-notch management team. CEO Tim Cook is currently leading Apple's transformation to a platform-driven operating model. The company isn't turning its back on the physical products that consumers have loved (iPhone, iPad, Mac, Apple Watch), but it's just evolving to focus on subscription services.
The subscription-driven platform should not only help Apple improve its operating margins over time, but also help smooth out the sales fluctuations often seen during major iPhone upgrade cycles. Additionally, subscriptions should strengthen Apple's already impressive customer loyalty and keep consumers within the company's ecosystem of products and services.
But Warren Buffett's favorite thing about Apple may be its unparalleled capital return program. Apple pays out $14.8 billion in annual dividends to shareholders and has repurchased $651 billion worth of common stock since launching its stock repurchase program in 2013. As a result of these share buybacks, Berkshire's stock has steadily increased.
Bank of America: Market cap $36,695,773,295 (9.9% of invested assets)
Apple accounts for the bulk of Berkshire Hathaway's investment assets, but financials are the only sector in which Buffett has historically invested.Money center giant american bank (BAC 1.53%) It accounts for nearly 10% of Berkshire's $372 billion investment portfolio.
What makes bank stocks so attractive to Oracle of Omaha is its ability to take advantage of extended periods of growth. Because the U.S. economy takes a disproportionately long time to expand compared to contract, money center banks like BofA are able to expand their loan portfolios and generate more interest income over time.
But Bank of America is aiming for more than just the long-term, stable growth of the U.S. economy. First, it's the most interest rate-sensitive of the largest U.S. banks. Since March 2022, the Federal Reserve has been raising interest rates at the fastest pace in 40 years. As a result, BofA increased its net interest income by billions of dollars each quarter.
Even more impressive was BofA's efforts to promote digital banking. Since the end of 2020, the digital banking adoption rate among consumer households has increased by 6 percentage points to 75%, with nearly half of all loan sales completed online or via mobile apps in the quarter ended December. As consumers shift their banking habits to digital platforms, Bank of America has the luxury of consolidating some of its physical branches and reducing expenses.
The highlight for Warren Buffett is that Berkshire's BofA stock generates nearly $992 million in annual dividend income.
Image source: American Express.
American Express: Market capitalization $33,081,454,740 (8.9% of invested assets)
Did we mention that financial stocks are kind of the go-to for Omaha's Oracle? The credit services kingpin? american express (AXP -0.08%) has remained in Berkshire's portfolio for 33 years (and will continue to do so) and represents just under 9% of its invested assets.
Like Bank of America, AmEx has benefited from a long period of growth. Since World War II, the United States has never had a recession longer than 18 months, but there have been two economic expansions that lasted more than 10 years. These long growth cycles encourage consumer and business spending, which is good news for AmEx.
What makes American Express so uniquely successful over so long is its willingness to act on both sides of the trade aisle. However, it is the third largest payment processor in the United States (the world's largest consumer market) by credit card network purchases. If the U.S. and global economy booms, merchants will likely charge hefty fees.
On the other hand, it also acts as a lender. The company's cardholders can pay an annual fee and interest to American Express. As a lender, AmEx may be exposed to credit delinquencies and potential loan losses during economic downturns, but this dual approach has value as it can achieve double-dip during long periods of growth. there is.
I would also be remiss if I didn't mention that American Express has an uncanny ability to attract high-income earners. Wealthy cardholders are less likely to change their spending habits or miss paying their bills when inflation rates rise or a mild recession occurs. In theory, AmEx is better prepared for economic downturns than most financial institutions.
Coca-Cola: Market value $23.312 billion (6.3% of invested assets)
The fourth-highest holding in Berkshire Hathaway's $372 billion portfolio is none other than Warren Buffett's longest-held stock. coca cola (KO 0.68%). Coca-Cola stock has been continuously held by Oracle, an Omaha company, since 1988.
If you need proof that time is an undeniable ally for investors, Coca-Cola is a great example. The beverage giant Berkshire Hathaway's cost basis is approximately $3.2475 per share. However, thanks to 62 consecutive years of annual basic dividend increases, Koch Co. now returns $1.94 per share to shareholders each year. Berkshire's investment team oversees a 60% annualized return on Coca-Cola relative to its cost basis.
Coca-Cola's long track record of success can be boiled down to three factors. First, there are consumer staples stocks. It provides the basic necessities (beverages) that consumers purchase regardless of whether the U.S. or global economy is booming or busting. This made our operating cash flow very predictable each year.
Second, Coca-Cola's geographic diversity is virtually unparalleled. With the exception of North Korea, Cuba, and Russia (due to the invasion of Ukraine), Koch continues to operate in all other countries. While the company is able to move the needle on organic growth thanks to its presence in emerging markets, it also delivers predictable cash flows in developed countries.
The third catalyst is top-notch marketing. The company has shifted a significant portion of its advertising budget to digital channels to reach younger audiences. But Coca-Cola has a storied history that it can rely on to connect with mature consumers.
