Warren Buffett invests via his company, Berkshire Hathaway. Each quarter, it has to report the current holdings, including the size of each investment. From this, I can see not only what Buffett is investing in, but how much of his overall pot he’s putting to work. From the latest 13F filing, three stocks make up over half of his portfolio. Should I buy them in the same proportion?
The top three
Dominating the overall portfolio is Apple. Buffett holds 38.6% of his funds in this one company. This is a lot, although given the market cap of Apple, it accounts for a smaller stake of 5.8% of the tech giant.
Something that highlights the large portion of money in Apple shares is that the second-largest holding only accounts for 10.6% of the portfolio. This is invested in Bank of America stock. It’s a classic Buffett-style stock, which generates good cash flows and return on equity. The banking sector has been tainted by 2008. But it’s still an area that has been profitable for a long, long time.
Finally, 8.8% of the portfolio is allocated to Chevron shares. This was a position first initiated back in autumn 2020, which has been increased over time. Given the strong performance of oil over the past year, the business has enjoyed a rise in profits in the short term.
A point not to follow
Despite my respect for Buffett, I don’t want to have this amount of exposure to just three companies. When I first started investing I would put a lot in just one single stock. But as I learned more, I realised that the risk inherent in doing this can be avoided by diversifying and owning more stocks.
The reason for this is my overall return will be disproportionately affected if I hold a lot of money in a few stocks. For Buffett, even if the other 20-30 stocks he owns does well this year, his return could be wiped out if the three stocks above perform really badly.
If I held the same stocks in similar percentages, the poor performance of Apple, Bank of America and Chevron would act as a drag for me too. But it wouldn’t be anywhere near the same size of negative impact, because my allocation to them is much lower.
Positive takeaways from this
What I do like from looking at his current portfolio is the sectors he’s targeting. In short, he focuses on tech, finance and commodities. Even though I don’t own the same stocks, I do think these are three hot sectors for the coming year.
Tech had a dreadful 2022 as investors negatively readjusted growth expectations. With this now reflected in the share prices, I think it’s a good time to start buying.
As for finance, I feel this is a stable area to invest in even during a recession. I can also find attractive dividend payers from this space.
Given the reopening of China, demand for oil is expected to surge. With supply from Russia still being artificially restricted, I think oil stocks could be in for a good year.
Therefore, even though I’m not copying Warren Buffett with the size of his purchases or specific stocks, I do like the areas he’s targeting.