So, what made him invest so heavily into just seven stocks? Let's take a look.
1. 🍏 Apple - 38%
Around 38% of Berkshire Hathaway's portfolio is invested in the world's most valuable company. In money terms, that's around $125 billion.
Why Apple?
Apple has managed to create an ecosystem of products and services, meaning its customer retention and loyalty is very strong
It produces the most popular smartphone in the US. Nuff said, really.
Whilst Apple has been criticised for relying too heavily on the iPhone, it does consistently innovate. Most recently, its introduced subscription based revenue models like Apple TV and Apple Arcade
Dividends - it returns a tasty $14.6 billion in dividends to shareholders each year, and spoiler alert, Buffett loves a dividend
2. 🇺🇸 Bank of America - 11%
Buffett also loves investing in banks, and it's for one simple reason - they win at the numbers game.
When run successfully, banks have access to large amounts of capital which they can use to turn more profits. As they have a diverse amount of products and services, they can spread their risk across different asset classes, which can help to stabilise their earnings.
Like any stock, banks aren't future-proof though. They can be susceptible to recessions, and have to be wary of a bank run, as in the infamous Silicon Bank Valley example.
Why BoA?
Strong management team - Buffett believed the team could successfully navigate the challenges facing the U.S banking industry in 2011
Untapped growth in profitability
He saw the stock as undervalued, which Buffett regularly says is one of the main factors he focuses on
Strong history of dividends - yep, we told you. Buffett loves a dividend.
3. ⛽️ Chevron - 9%
After tech and financial stocks, Chevron makes a nice addition as an energy stock.
But why Chevron specifically?
One of the largest and most diversified energy companies in the world
It has a strong balance sheet and a history of generating significant cash flow
It's well-positioned to benefit from the long-term growth in global demand for oil and gas.
Whilst all investing comes with a natural element of risk, Chevron's ability to hedge against its main business model might just be why Buffett opted for it over other well-run energy companies.
4. 🥤 Coca-Cola - 7%
Buckle in, you're about to be hit with some staggering numbers.
Buffett and his team bought $1 billion worth of shares in Coca-Cola stock.
He still holds those shares today, and without even selling a single share, he’s earned a whopping $10 billion dollars via dividend payments. That works out at almost $2 million a day completely passively - it’s easy to see why he’s keen to hold on to them.
So how’d all of this happen? Well, it’s a masterclass in long term investing. Buffett reinvested much of his earnings back into the stock, allowing his initial $1 billion investment to benefit from ‘compound interest’. And the rest is history.
So why did Coca-Cola appeal?
Prolific marketing
Truly global - aside for Cuba, North Korea, and Russia, it operates in every country
Monopoly of drinks - it owns Fanta, Dr Pepper, Oasis, Powerade, Schweppes and Smartwater to name a few
5. 💳 American Express - 7%
Buffett's love for banks extends into the wider financial services sector.
AmEx lends money and collects fees from its cardholders, and has successfully attracted high earners. As higher earners aren't as likely to be affected by inflation or a recession, AmEx has become a reliable stock for Buffett.
Maintained a strong balance sheet
The company has a leading position in the financial services industry
Amex has strong profits and cash flows even during challenging economic times, which makes it different from many companies in the financial industry
The company has invested in technology and innovation to stay ahead of the curve and expand into new markets
6. 🥫 Kraft Heinz - 4%
The financial and technology sectors can suffer during difficult economic times. Investing in a non-cyclical industry like essential consumer goods has been a vital part of Buffett's strategy.
Why Kraft Heinz?
It offers a more 'defensive' approach, as it owns a dozen well-recognised food brands that benefit from strong pricing power (the ability to rise prices without losing out on sales)
It has an extremely strong, global brand
Large and diversified portfolio of well-known brands
The company has a strong market position in many key categories, such as condiments and frozen meals.
Buffett saw the potential that the merger of Kraft and Heinz would have
7. 🏗 Occidental Petroleum - 4%
Arguably, this was one of Buffett's riskier investments as the company took on a significant amount of debt to finance its acquisition plans, which some investors viewed as risky. There were also environmental risks around the amount of gas emissions.
So what made him take a risk on Occidental Petroleum?
Upcoming acquisition of Anadarko Petroleum - this would make Occidental one of the largest players in oil production in the US
Management team - Buffett was reportedly impressed by Occidental's management team and their ability to make strategic acquisitions in the past
He also liked the high dividend on the stock, which around the time of Buffett buying was around 5-8%
How did Warren Buffett make his money?
One reason for Buffett's concentrated portfolio is that he believes in investing in companies that have a competitive advantage, or what he calls a "moat." He has said that he would rather own a significant stake in a few great companies than a small stake in many mediocre ones.
You might be thinking this strategy seems contradictory to the usual idea of encouraging diversification. I guess you can play by your own rules when you're arguably the greatest investor alive!
Although Warren Buffett has put a major chunk of his investments in the seven stocks, his total wealth is not completely based upon them. He has diversified his assets into insurance, utilities, energy, and other industries.
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