Key to building portfolios: 75% of Warren Buffett’s portfolio is invested in these 5 stocks

When it comes to billionaire fund managers, Warren Buffett, CEO of Berkshire Hathawayis in a prominent position, so many investors emulate its positions and investments.

Since taking the reins of Berkshire Hathaway in the mid-1960s, the man also known as the “Oracle of Omaha” has achieved an aggregate return on his company’s Class A shares (BRK.A) by an astonishing 5,422,618%, as of the close on July 17In terms of annualized total returns, spanning nearly six decades, it has nearly doubled the S&P 500 index, including dividends.

The secret of his success is no mystery. As he has said on several occasions, Buffett looks for time-tested businesseswith well-defined competitive advantages and strong management teams.

However, Buffett does not get enough credit for concentrating his portfolio on Berkshire Hathaway. Although he and his top investment assistants, Ted Weschler and Todd Combs, are currently They oversee a $416 billion investment portfolio across 44 stocks, all of whom firmly believe in allocating a disproportionate amount of capital to their best ideas.

This is what Warren Buffett’s portfolio is made up of

• Apple (43.4% of invested assets)

Any doubts about Warren Buffett’s preference for concentrating his company’s invested assets in a few prominent companies are put to rest by Berkshire’s holding in tech stock Apple. Even after two consecutive quarters in which Buffett and his team reduced their position in Apple, this top investment still represents more than 43% of Berkshire’s investment portfolio.

Apple’s driving force as an investment has long been its innovative capabilities. For example, Apple has maintained more than 50% of the domestic smartphone market since the introduction of a 5G-capable iPhone in the second half of 2020.

• Bank of America (10.9% of invested assets)

The second-largest position in Warren Buffett’s $416 billion Berkshire investment portfolio is in financial giant Bank of America, commonly known as “BofA.” Buffett and his team oversee more than 1.03 billion BofA shares, equivalent to a 13.2% stake in the company.

There is no sector in which Warren Buffett enjoys investing his company’s capital more than in the financial sector. His preference for BofA might be related to its sensitivity to interest rates. The Federal Reserve’s most aggressive rate-hiking cycle since the early 1980s has added billions of dollars in net interest income to Bank of America’s bottom line.

• American Express: (9.1% of invested assets)

Credit services provider American Express ranks third in Berkshire’s portfolio.

American Express has always been especially good at attracting high-income earners as cardholders. The wealthiest are less likely than the average worker to alter their purchasing habits or stop paying their bills during minor economic turmoil.

• Coca-Cola: 6.3% of invested assets

Coca Cola has been a mainstay for the Oracle of Omaha since 1988. Branding is a key reason Coca-Cola has been a consistent performer for decades. According to Kantar’s annual “Brand Footprint” report, Coca-Cola has been the most-chosen brand by consumers on retailer shelves for 12 consecutive years. Selling a product (beverages) considered a basic necessity leads to consistent and predictable operating cash flow year after year.

It also helps that Coca-Cola offers nearly unmatched geographic diversity. With the exception of North Korea, Cuba and Russia (the latter due to its invasion of Ukraine), Coke has operations in every other country. This allows it to take advantage of organic growth opportunities in emerging markets, while generating predictable cash flows in developed countries.

Coca-Cola’s dividend is also an undeniable draw. Berkshire’s cost basis for its 400,000,000 share stake in Coca-Cola.

Chevron: (4.8% of invested assets)

Buffett’s fifth-largest holding, which along with Apple, Bank of America, American Express and Coca-Cola accounts for 75% of Berkshire Hathaway’s $416 billion in invested assets, is energy giant Chevron.

For the first two decades of this century, energy stocks played a minimal role in Berkshire’s portfolio. But since the beginning of this decade, Buffett has shown a clear interest in Chevron, as well as Occidental Petroleum.

The fact that nearly $20 billion is dedicated to Chevron is a clear indication that Berkshire’s brightest minds expect the spot price of crude oil to remain elevated. Roughly three years of capital expenditure cuts by global energy companies (including Chevron) during the COVID-19 pandemic has led to tight global supply of this key commodity. As long as crude oil supply remains constrained, there is a good chance we will see its spot price remain above its historical average.

Chevron is also an integrated operator, which helps protect its operating cash flow in virtually any economic climate. Although it generates its strongest margins from its upstream drilling segment, a declining spot price for crude oil reduces input costs for Chevron’s refineries and chemical plants.

The final piece of the puzzle is Chevron’s phenomenal capital return program. The company’s board of directors approved a $75 billion share repurchase program in January 2023, and it has authorized 37 consecutive years of dividend increases.