For almost 60 years Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett has provided his investors with outstanding returns. While the scale S&P 500 Buffett has gained just over 34,000%, including dividends paid, since the “Oracle of Omaha” took over as CEO of Berkshire in the mid-1960s. Buffett has achieved a total return on his Class A shares (BRK.A) that exceeded 5,100,000%. , from the closing bell on April 5th.
Buffett’s secret to significantly outperforming Wall Street’s major stock indexes is no secret at all. For decades, he and his investment team – which, until his recent death, included the likeable “Architect of Berkshire Hathaway” Charlie Munger – have sought out proven brand-name companies with clearly defined competitive advantages and exceptional management teams.
But the other piece of the puzzle that doesn’t get nearly enough credit for Berkshire Hathaway’s long-term outperformance is Warren Buffett’s penchant for portfolio concentration. Although his company’s $370 billion portfolio includes holdings in 45 stocks and two index funds, much of the invested assets have been invested in a small number of companies.
Let’s take a closer look at all 27 companies in which Warren Buffett and his investment team have invested at least $1 billion of Berkshire’s capital.
Berkshire Hathaway’s seven core holdings
There’s no question that the Oracle of Omaha and his closest associates, Todd Combs and Ted Weschler, prefer to pour big money into their best investment ideas. As of the closing bell on April 5, nearly 81% of Berkshire’s $370 billion portfolio could be traced to seven core holdings:
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Apple (NASDAQ:AAPL): Market value $153,564,865,800
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Bank of America (NYSE:BAC): $38,329,137,943
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American Express (NYSE:AXP): $33,727,316,322
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Coke: $23,804,000,000
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Chevron (NYSE:CVX): $20,376,681,482
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Occidental Petroleum (NYSE:OXY): $17,175,255,364
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Kraft Heinz: $12,068,026,355
Technology stock Apple was described by Warren Buffett as “a better company than any we own” at Berkshire’s annual shareholder meeting last May. In addition to exceptional branding, a loyal customer base and an unbeatable share buyback program, innovation was the company’s driving force.
Apple’s iPhone is the clear leader in domestic smartphone market share, and CEO Tim Cook is overseeing his company’s steady transition toward a future based on subscription services. Subscriptions should allow Apple to achieve higher operating margins and more consistent revenue during iPhone upgrade cycles.
These core holdings also demonstrate Buffett’s long-standing love of financial stocks as well as his newfound fondness for energy stocks.
The beauty of financial stocks like Bank of America and American Express is that they benefit from disproportionately long periods of economic growth. While recessions only last a few months, most recoveries last several years. This allows Bank of America to expand its interest-earning loan portfolio over time, while allowing American Express to double-dip as a merchant payment processor and generate higher fee income and interest income from its cardholders.
The more than $37 billion invested in Chevron and Occidental Petroleum combined appears to be a clear sign that Buffett and his team expect the spot price of crude oil to remain above its historical average. Years of inadequate capital investment by major energy companies during the COVID-19 pandemic have led to a shortage of global oil supplies. As long as these bottlenecks persist, the high-margin drilling segments Chevron and Occidental should benefit.
Warren Buffett’s Other Billion-Dollar Bets (and Potential Future Core Holdings)
In addition to the Oracle of Omaha’s seven core bets, there are 20 other holdings that currently have a market value of over $1 billion. Some of these holdings are well on their way to becoming core holdings:
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Moody’s: $9,682,147,772
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Mitsubishi (OTC:MSBHF): $8,210,607,679
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Mitsui (OTC: MITSF): $5,831,542,812
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Itochu (OTC:ITOCF): $5,300,908,992
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DaVita: $4,822,729,108
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Citigroup: $3,403,079,495
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Hook: $2,865,500,000
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Sumitomo (OTC: SSUM.Y): $2,447,556,628
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Marubeni (OTC: MARUY): $2,425,730,018
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VeriSign: $2,407,028,434
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Visas (NYSE:V): $2,299,558,064
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BYD: $2,238,515,778
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MasterCard (NYSE: MA): $1,902,229,093
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Amazon: $1,850,700,000
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Capital One Financial: $1,789,842,226
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Liberty SiriusXM Series C: $1,786,465,937
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Aeon: $1,307,859,000
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Now stocks: $1,283,283,032
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Ally Financial: $1,113,020,000
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Charter communication: $1,024,203,428
What stands out most about these “other” billion-dollar bets is Warren Buffett’s faith in the five Japanese trading houses: Mitsubishi, Mitsui, Itochu, Sumitomo and Marubeni. These are companies that somewhat mirror Berkshire Hathaway in that they are involved in several aspects of their domestic (Japanese) economy, including food/consumer goods, energy (oil/gas), and chemicals.
According to Buffett’s most recent annual letter to shareholders, all five Japanese trading houses are believed to be long-standing holdings of Berkshire Hathaway and all trade at relatively low price-to-earnings ratios.
These billion-dollar bets also shed light on how much the Oracle of Omaha and his team favor financial stocks. While BofA and AmEx are the best of the best, Berkshire’s $370 stock has significant representation (in dollar terms) of payment processors (Visa and Mastercard), loan servicers (Capital One Financial and Ally Financial), and major banks (Citigroup) . Billionaire portfolio.
Visa and Mastercard are arguably the fastest-growing stocks in which Berkshire Hathaway holds shares. Although they both benefit from long periods of domestic and global expansion, it is their avoidance of lending and exclusive focus on payment facilitation that makes them so great.
Because neither Visa nor Mastercard lends money, neither company is required to set aside capital to cover loan defaults and/or loan defaults during a recession. This financial flexibility allows both companies to recover quickly from economic downturns.
At the end of Berkshire’s billion-dollar bets, the undeniable influence of Combs and Weschler also emerges. For example, the $1.85 billion position that Berkshire holds in e-commerce giant Amazon is not Buffett’s doing. Rather, Combs and/or Weschler established this position. Although Buffett will rarely invest his company’s capital in high-growth companies, finding value stocks has long been his area of expertise.
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American Express, Ally, Bank of America and Citigroup are advertising partners of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Amazon, Bank of America, Mastercard and Visa. The Motley Fool holds positions in and recommends Amazon, Apple, BYD, Bank of America, Berkshire Hathaway, Chevron, Mastercard, Moody’s, VeriSign and Visa. The Motley Fool recommends Kraft Heinz, Kroger, Nu Holdings and Occidental Petroleum and recommends the following options: long $370 January 2025 calls on Mastercard and short $380 January 2025 calls on Mastercard. The Motley Fool has a disclosure policy.
Here are all of Warren Buffett’s $27 billion bets on Berkshire Hathaway’s $370 billion portfolio was originally published by The Motley Fool