Warren Buffett is the chief executive of Berkshire Hathaway. Although he doesn’t own all of it, people often refer to it as ‘his company’. Undoubtedly, the American billionaire has a major influence on the stocks that it buys. Therefore I think it’s correct to consider Berkshire’s biggest holdings as Buffett’s favourite stocks.
Over Christmas, I started to consider whether I could become a millionaire by investing £10,000 in his most popular holdings.
Here’s what I concluded.
The big five
At 30 September 2023, Berkshire’s five largest stakes — American Express Corporation, Apple, Bank of America, The Coca-Cola Company, and Chevron Corporation — accounted for 72.4% ($231bn) of the balance sheet value of its equity investments ($319bn).
It’s not possible to identify the profit that’s been made on each. But the cost of all the stocks held at the end of the third quarter of 2023 was $111bn. The company, therefore, is sitting on a paper profit of $208bn.
Impressive returns over the past five years
To see what sort of gains these might make over the next five years, I’ve looked back in time.
The table below shows the share price performance — compound annual growth rate (CAGR) — of these companies since the start of 2019.
| Stock | Share price CAGR (1.1.19 to 31.12.23) % |
|---|---|
| American Express Corporation | 13.9 |
| Apple | 39.0 |
| Bank of America | 5.7 |
| The Coca-Cola Company | 4.4 |
| Chevron Corporation | 6.1 |
| Average | 13.8 |
For the purposes of this exercise, I’ve assumed that I would split my initial £10,000 investment equally across all five.
Assuming history is repeated, I could then achieve an average annual growth rate of 13.8%. And I would become a millionaire within 36 years. Although this sounds like a long time, I’d still be younger than Warren Buffett is today.
Remember, this ignores dividends. The gains would be higher — and my £1m fortune could be made more quickly — if these were reinvested, buying more shares.
Why not concentrate on one?
Some might say, why not invest everything in Apple, which has historically achieved the highest return of the five?
It also happens to be Berkshire’s biggest position. Indeed, if I put all of my £10,000 into the stock, and it continued to grow at 39% each year, I could have £1m within 14 years.
But I’m a cautious investor and I believe in spreading risk across several companies. That’s because there’s no guarantee that history will be repeated. And I might choose one that goes bust, losing all of my money.
As Buffett once said: “The investor of today does not profit from yesterday’s growth“.
And the American doesn’t always get it right. Let’s look at what he calls his “most gruesome mistake“. He paid for the Dexter Shoe Company by giving the owners Berkshire Hathaway stock. The company eventually collapsed but the shares used to buy Dexter are now worth $12bn.
Also, as companies mature, their rate of growth tends to slow. Coca-Cola was founded in 1892. Apple was established in 1976. I think this partly explains the difference in their recent growth rates.
What does this all mean?
My analysis tells me that it’s possible to turn £10,000 into £1m by investing in Warren Buffett’s favourites. However, this isn’t a certainty.
But even if I ‘only’ achieved 50% (or 25%) of my target, I’d still have more than I’ve got today.
And that’s why I invest in the stock market. It’s a way of trying to make my money work better.
