71% of Warren Buffett’s $358 billion portfolio is invested in just four 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 doesn’t need to look any further than his investment performance since he became CEO in the mid-1960s. For nearly 60 years, he has overseen a total return of more than 4.48 million percent on his company’s Class A shares (BRK.A) as of the closing bell on January 5th. This kind of return will attract the attention of asset managers. On Wall Street.

Oracle of Omaha’s not-so-subtle secrets to success are well-documented and include a penchant for acquiring profitable companies with brand names and strong moats with trusted management teams. But more than any other factor that has done most of Berkshire Hathaway’s heavy lifting over time, it’s its highly concentrated investment portfolio.

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

Both Warren Buffett and his late right-hand man, Charlie Munger, firmly believed that their top investment ideas should have been given weight in Berkshire’s investment portfolio. At 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 just four stocks.

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

Buffett’s firm started the new year with 49 stocks, but it’s clear that focusing your portfolio on 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 active. apple (AAPL -0.32%).

At Berkshire Hathaway’s annual shareholder meeting in May 2023, Buffett said Apple was “a better company than any other company 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 was the driving force behind Apple’s recent valuation of over $3 trillion. The company has been a leading developer of smartphones for over a decade and is the undisputed smartphone leader by market share in the United States.

To further strengthen this point, CEO Tim Cook is overseeing a multi-year shift in Apple’s focus on subscription services. The company is not putting aside the physical products that consumers have loved (iPhone, iPad, Mac), but is looking to further strengthen customer loyalty while strengthening operating margins and cash flow. We are expanding our platform for this purpose.

But perhaps the greatest thing about Apple is its capital return program. The company pays out the second-largest nominal dollar dividend of any publicly traded U.S. company ($15 billion annually) and has repurchased about $600 billion worth of common stock since the beginning of 2013. Warren Buffett loves it when companies buy back their own stock to increase profits. Berkshire can take ownership of the company without him or his investment team having to do anything.

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

While that’s a far cry from the nearly $166 billion invested in Apple, it’s still a far cry from the more than $35 billion invested by Buffett and his team. american bank (BAC -1.34%) Not a single drop falls into the bucket. As of Jan. 5, BofA accounted for just under 10% of Berkshire’s $358 billion investment portfolio.

There are many factors that drive Warren Buffett’s portfolio. One of those factors is his tendency to invest in cyclical businesses, businesses that rise and fall depending on the health of the U.S. and global economies. Bank stocks like BofA certainly fit that bill.

Recessions are a perfectly normal and expected aspect of economic cycles. At the same time, they are also short-lived, at least as history tells us.

Of the 12 recessions since World War II, only three lasted more than a year, and none of the other three lasted more than 18 months. On the other hand, there are two expansions that lasted at least 10 years on the same timeline. Companies like Bank of America can take advantage of long-term expansion by steadily growing their loan/lease portfolio over time.

Perhaps the unique thing about BofA that caught the Oracle of Omaha’s attention is that it is more sensitive to interest rates than other large banks. When a country’s central bank adjusts interest rates, no bank sees more changes in its net interest income than Bank of America. The most aggressive rate hike cycle in more than 40 years has added billions of dollars to BofA’s net interest income each quarter.

Bank of America also trades near book value. It’s often a smart move for investors to buy stocks in well-run banks at or slightly below book value.

Image source: American Express.

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

Now is probably the perfect time to mention that Warren Buffett and his “investment lieutenants” Todd Combs and Ted Weschler love the financial sector. There is probably no other market sector that Buffett has a better grasp of.And that’s exactly why we’re a credit service provider. american express (AXP 0.03%) Owned continuously since 1991.

The AmEx bull thesis has some similarities to Bank of America. In other words, the good news is that the U.S. economy will continue to grow for a longer period of time. The third-largest payment processor in the U.S. by credit card network purchases will see its long-term expansion drive consumer and business spending.

But what really helps American Express stand out is its ability to generate revenue from both sides of a transaction. Amex is a major payment processor, and in addition to collecting fees from merchants, it also acts as a lender to consumers and businesses. This generates fee and interest income for cardholders, effectively providing a double dip during extended economic expansions.

The downside to this strategy is that it exposes American Express to credit delinquencies and loan losses during recessions. But Amex has a trump card: it primarily targets high-income earners as cardholders. People with higher incomes are less likely to change their purchasing habits or skip paying their bills during mild economic disruptions.

After owning American Express stock for more than 30 years, Buffett’s company has also earned a hefty dividend. With AmEx’s cost basis per share of approximately $8.49, Berkshire enjoys his annual yield of over 28%.

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

Along with Apple, Bank of America and American Express, the beverage giant is the fourth largest stock at Berkshire Hathaway, accounting for 71% of the $358 billion portfolio overseen by Warren Buffett. coca cola (KO -0.65%). This marks the 36th consecutive year that Buffett’s company has owned Coca-Cola stock, the longest such holding period for Berkshire.

The best thing about consumer staples stocks like Coca-Cola is the predictability of their performance. While demand for discretionary goods can rise and fall depending on the health of the U.S. and global economy, demand for basic necessities such as food and beverages remains relatively constant regardless of economic conditions. It’s still there.

Additionally, the company enjoys virtually unparalleled geographic diversity. Coke continues to operate in all countries except North Korea, Cuba and Russia. This allows us to generate predictable operating cash flows in developed markets while increasing our internal growth rates through emerging markets. Coca-Cola’s product portfolio currently consists of 26 brands, with annual sales exceeding his $1 billion.

Coca-Cola’s marketing team also deserves credit. The team seamlessly shifted focus to digital channels and leveraged artificial intelligence (AI) to tailor advertising to younger audiences. Remember, Coke has a historical connection to the holiday season, along with famous brand ambassadors, which helps it attract more mature consumers.

What’s even more important about investing in Berkshire’s Coca-Cola is the yield relative to cost. Buffett’s company’s Coca-Cola stock has a cost basis of $3.2475 per share, and Coke has raised its dividend for 61 consecutive years. Overall, Berkshire has an annualized cost yield of nearly 57%.