When looking at other investors, Warren Buffett is in a league of his own. Known as the “Oracle of Omaha,” the chairman of Berkshire Hathaway has made calculated decisions that have increased Berkshire’s Class A shares by almost 4,100,000% since 1965.
Most people would get noticed for making these vast increases in portfolios. People ask how they could do the same and become rich, but Warren Buffett is in a league of his own and follows simple principles when he makes decisions.
Both Buffett and Charlie Munger suggest that 90% of people should invest in an index fund that tracks the S&P 500 and buy and hold for a long time. That fund will bring out significant diversification in your portfolio.
Then people see what Buffett and Munger do and want to copy it. The Buffett method is to hold a few companies that have strong earnings, reliable dividend payments, and sound corporate governance. Then Buffett holds those companies for a very long time. These five American stocks hold 77% of Warren Buffett’s Portfolio.
1. Apple $150.98 Billion (46.44%)
If you see that over 46% of Buffett’s portfolio is concentrated on Apple, you may think he could be some fool placing a bet like that. It is not a foolish mistake. Apple has the largest market cap of any company in the world. It is considered the best brand in the world.
Items like the iPhone have been dominating the market for over 16 years. The top 4 four phones in 2023 are all iPhones, and they only produce four new phones yearly. With innovation, Apple has created a company entwined into our society.
People wear Airpods, Apple watches, use their iPhones, and now will be putting money into Apple savings accounts. With each new product comes more stability within the company for the long haul. Warren Buffett makes a wise choice by choosing Apple.
2. Bank of America $29.54 Billion (9.09%)
Apple may be the largest holding in Buffett’s portfolio, but it is not the only sector he is involved in. Buffett enjoys the financial sector much more. The evidence can be seen in his large allocation to Bank of America.
Banks and financials are a cyclical market. The market may swing up and down with interest rates and many other attributes, but banks will continue to make money on loans and deposits.
Many banks have been hit hard with higher interest rates, but Bank of America has been flying high. The variable interest rates loans have helped bring in billions in profits, and once those rates go back down, there will be a time of expansion. When economies are roaring, it is suitable for banks to help fund those corporations and small businesses.
It comes with a nice dividend as well. More dividends mean more cash flow. Bank of America has a dividend yield sitting at around 3.08%. That is not a lousy dividend yield at all.
3. American Express $25.01 Billion (7.69%)
American Express makes up Buffett’s third-largest holding. It is one of Buffett’s long-lasting holdings that was purchased in 1993 and had an unrealized capital gain of over 1,700%, not counting dividends.
American Express makes money in two different ways. It primarily makes money through credit card transactions. As the number three largest credit transaction company in the U.S., the money comes from merchant fees.
American Express also makes money through lending money. So it earns money from interest payments and credit card fees.
What makes American Express such a great asset in Buffett’s portfolio is its strategy to go after high-income consumers. When economies crash or go into recession, high-income consumers will continue to spend money. It means there will be less disruption in the cash flow.
4. Coke Cola $24.81 Billion (7.63%)
Coke-Cola is Warren Buffett’s fourth largest holding and Berkshire Hathway’s longest-held stock. Buffett has been holding onto Coke-Cola since 1988. What makes Coke Cola such a great company to hold?
It is a consumer staple that is world-renowned. It operates in almost every country and consistently tries to create connections with new generations. Coke Cola also brings in over $1 Billion in revenue. If it is not creating new products, it consistently increases its dividends to the shareholders each year for over 61 years.
Coke Cola may not be a growth company like Apple or a financial company like Bank of America or American Express. Still, it is a product that everyone knows, like McDonald’s. It has a great brand like Apple. Plus, it consistently brings in cash flow.
5. Chevron $21.60 Billion (6.65%)
Chevron comes on this list as number 5 in Buffett’s portfolio. It is an energy stock, and you may wonder why Berkshire Hathaway would be investing in energy stocks. That is a great question.
Since the pandemic and Russia’s war in Ukraine, oil prices have soared slightly. The oversupply during the pandemic meant oil companies halted pumping out more; therefore, it could take a few years to get that volume up to pre-pandemic levels.
If oil prices fall, Chevron is still set up to create cash flow. It has an extensive network of pipes, refineries, and chemical plants. The latter two enjoy low costs and high outputs when oil prices are much lower. So Chevron has set itself up to continue to create income in the case of oil prices dropping.
A bonus is that Chevron continues to get cash back to its shareholders. It has increased its dividend every year for 36 years consecutively and looks to make some massive share buybacks to help improve the price of shares.
Warren Buffett knows how to invest, and we can learn from how he invests. He is not perfect, and he knows that. He has learned something from investing and makes wise decisions based on experience. You may not be interested in these five stocks, or they may be a bit overpriced, but Buffett says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Find those good companies at fair prices, and you could make a good portfolio or invest in a simple S&P 500 ETF like SPY or VOO. Buffett holds both of those ETFs in his portfolio too.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.