Warren Buffett is probably the most famous investor around. His investment company, Berkshire Hathaway, posted a compound annual return of 20% between 1965 and 2020. To put this into context, this would have grown a £10,000 investment into a huge £272m.
I’ve been analysing Warren Buffett’s portfolio to see if I can incorporate some of his investment wisdom into my own. Here’s what I’ve found, and how I’m going to implement it in my portfolio this year.
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Warren Buffett and Apple
According to the Berkshire Hathaway Shareholder Letter in 2020, its top three portfolio holdings were Apple, Bank of America, and Coca-Cola. There were three things that struck me about these positions.
Firstly, Apple is the largest weighting in Berkshire Hathaway’s portfolio. Warren Buffett first bought Apple stock in late 2016. However, there have been two steep falls in the share price since then.
The first was in the fourth quarter of 2018. Apple’s share price fell almost 39% over this period when the stock market crashed. The Covid-related crash in March 2020 also meant the stock fell over 31%.
Crucially, Warren Buffett carried on holding Apple shares during this volatility. It turned out well in the end, because Apple was the first company to surpass a $3trn market value recently. Indeed, the return for the Berkshire portfolio has been many billions of dollars.
So, what can I take from this? Well, that stock market crashes do happen. But most importantly, when they happen, I shouldn’t panic-sell a good company if nothing fundamental has changed with the business. Buffett didn’t sell Apple just because the share price crashed. It was still a quality company, and the return has been spectacular since.
Bank of America
Next in line is Bank of America, Berkshire’s second largest position. But it’s what Buffett was doing after the stock market crash in 2020 that’s worth studying.
After the market low in March that year, technology stocks started to rally. The world was still in the midst of the pandemic, but companies such as Zoom and Microsoft were in high demand, particularly due to the work-from-home habits that had developed.
Warren Buffett spotted value elsewhere though, in Bank of America. According to filings with the US regulator, Buffett bought $2.1bn worth of the stock at around a $24 share price. Today, the stock has doubled as the price is almost $48 as I write.
I think this shows the potential for hidden value in unloved sectors. Buffett spotted this with Bank of America when everyone else was buying technology stocks and he doubled his money in the process.
Finally, Coca-Cola is Berkshire Hathaway’s third-largest holding. What’s remarkable about this position is that Warren Buffett first bought the stock in 1988.
How has he been able to hold the stock for so long? Well, Buffett likes to buy companies with economic moats. Coca-Cola’s brand is recognisable all around the world. It also has a distribution network that rivals most companies. This has meant it’s been able to protect its profits, and pay a dividend now for 58 years straight.
Therefore, I’m going to search for companies like Coca-Cola with enduring economic moats. It’s a strategy that has worked very well for Warren Buffett over the years.