71% of Warren Buffett’s $357 Billion Portfolio Is Invested in Just 4 Stocks | The Motley

When Berkshire Hathaway (BRK.A -0.00%) (BRK.B 0.24%) CEO Warren Buffett weighs in on stocks or the U.S. economy, investors tend to pay close attention. That’s because the Oracle of Omaha has a phenomenal investment track record. Since becoming CEO in the mid-1960s, he’s led his company’s Class A shares to an annualized return of 19.8% (as of Dec. 31, 2022), which is double the 9.9% annualized total return, including dividends, generated by the benchmark S&P 500 over the same timeline.

The “formula” for Buffett’s and Berkshire Hathaway’s success is no secret. Buffett and his right-hand man, executive vice chairman Charlie Munger, willingly share the traits they look for in businesses and management teams that often lead to winning investments.

But the factor that doesn’t get nearly enough credit for Berkshire Hathaway’s success is portfolio concentration. Warren Buffett and his team of investors strongly believe in putting an outsized amount of capital to work in their best ideas. The $357 billion portfolio that Buffett and his team oversee, which holds 51 securities, currently has 71% of invested assets tied up in just four stocks.

Apple: $173,672,648,862 (48.6% of invested assets)

During Berkshire Hathaway’s annual shareholder meeting in May, Buffett referred to tech stock Apple (AAPL -0.70%) as “a better business than any we own.”

At the time Buffett made this remark, Berkshire outright owned railroad BNSF and leading insurer GEICO, as well as had small equity positions in Johnson & Johnson and Procter & Gamble. J&J is one of only two publicly traded companies with a AAA credit rating, while P&G boasts one of the longest annual streaks of dividend increases among publicly traded companies. And yet, Buffett views Apple as the best business of the bunch.

What Apple brings to the table for the Oracle of Omaha is predictability in a lot of respects. To begin with, it’s one of the world’s most-recognized brands, and it has an exceptionally loyal base of customers. A report released in 2021 from research group CIRP found that around 90% of iPhone buyers tend to stick with the brand when making their next purchase. The next-closest in loyalty rate was Samsung, which didn’t even reach the 70% loyalty-rate mark.

Apple also provides plenty of innovation. On top of the iPhone leading the U.S. in smartphone market share, CEO Tim Cook is overseeing a steady transition toward subscription services. Apple isn’t tossing aside the physical devices that brought it fame. Rather, it’s evolving into a more-diversified company that’ll bolster customer loyalty even more, as well as lift its operating margin over time.

Best of all, Apple’s capital-return program is unmatched. If you thought Warren Buffett buying back more than $72 billion worth of Berkshire Hathaway stock since July 2018 was impressive, you’re in for a surprise. Apple has bought back more than $600 billion worth of its own stock since commencing its share-repurchase program in 2013. These buybacks are progressively increasing Berkshire’s ownership stake in Apple.

Bank of America: $30,964,903,140 (8.7% of invested assets)

Although it’s a distant second fiddle to Apple, Bank of America (BAC 0.34%) accounts for nearly $31 billion of Berkshire Hathaway’s invested assets.

Financials are, without question, Buffett’s favorite sector to put Berkshire’s money to work in. Specifically, he’s a big fan of bank stocks. Even though banks are cyclical and can struggle with higher loan losses and credit delinquencies during recessions, the U.S. economy spends a disproportionate amount of time expanding, relative to the contracting. This allows bank stocks to grow their loan portfolios over time and benefit from the natural expansion of the U.S. economy.

But there are likely more than just macro factors influencing Warren Buffett’s love of BofA stock. In particular, Bank of America is the most interest-sensitive of the big banks. With the Federal Reserve undertaking its steepest rate-hiking cycle in four decades, no money-center bank has benefited more than BofA.

Bank of America’s technology investments are paying off handsomely, too. The company’s efforts to promote digitization have steadily increased the percentage of users banking digitally, as well as the percentage of loan sales completed online or via mobile app. Fewer in-person interactions have allowed BofA to consolidate some of its branches and reduce its expenses.

And let’s not forget that the Oracle of Omaha loves a good value. Bank of America is trading below its book value and doling out a yield north of 3%.

American Express: $24,645,835,392 (6.9% of invested assets)

Credit-services provider American Express (AXP 0.39%) is the third-largest holding in Berkshire Hathaway’s $357 billion portfolio. This 30-year holding accounts for almost 7% of invested assets.

Like Bank of America, AmEx, as American Express is commonly known, benefits from long-winded periods of economic expansion. Since the end of World War II in 1945, the U.S. has navigated 12 recessions, just three of which lasted 12 months and none of which surpassed 18 months in length. Comparatively, there have been a handful of expansions that have lasted between four and 12 years. These periods of growth allow financial stocks to thrive.

What really makes American Express tick is its ability to play both sides of the transaction counter. It’s the domestic No. 3, in terms of credit card network purchase volume, and it also acts as a lender to consumers and businesses. In other words, it’s collecting fees from merchants to facilitate transactions, as well as annual fees and interest income from its cardholders. Being able to double dip can upsize its profits during long periods of expansion.

Another reason AmEx is such a long-term success story is its clientele. American Express has an extensive track record of attracting high earners. Cardholders with above-average incomes are less likely to alter their spending habits during minor economic downturns. For AmEx, it means less chance of disruption during recessions.

Berkshire Hathaway is also generating significant annual income from its position in American Express. Buffett and his team are netting a 28.3% annual yield, relative to Berkshire’s $8.49-per-share cost basis in AmEx.

Coca-Cola: $22,904,000,000 (6.4% of invested assets)

The fourth and final stock that collectively with Apple, Bank of America, and American Express, accounts for 71% of the $357 billion portfolio Warren Buffett oversees at Berkshire Hathaway is beverage company Coca-Cola (KO 0.26%). Coca-Cola is Buffett’s longest continuously held stock (since 1988).

Coca-Cola is a consumer staples stock, which simply means it’s a non-cyclical company that provides products (beverages) consumers purchase regardless of how well or poorly the U.S. or global economy are performing. This consistency of demand leads to highly predictable operating cash flow.

Something else working in Coca-Cola’s favor is its brand awareness. It’s the most-valuable food and beverage brand globally, and according to the annual “Brand Footprint” report from Kantar has been the most-chosen brand by consumers over the past decade. Consumers purchase Coca-Cola products from store shelves nearly 6 billion times each year. This is an example of exceptionally strong brand loyalty.

Geographic diversity is another feather in the cap for Coca-Cola. With the exception of North Korea, Cuba, and Russia (the latter is due to its ongoing war with Ukraine), Coca-Cola has ongoing operations in every other country, and has a massive beverage portfolio with 26 brands generating at least $1 billion in annual sales. The company is able to lean on developed countries for consistent cash flow year in and year out, while pivoting to emerging markets for an organic growth boost.

To keep with the theme, Coca-Cola is also an income juggernaut. It’s increased its base annual dividend for 61 consecutive years. Given Berkshire’s exceptionally low cost basis of $3.2475 on Coca-Cola, Buffett’s company is generating a nearly 57% annual yield, relative to cost, on the beverage giant.