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4 key lessons from Warren Buffett’s current portfolio

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Warren Buffett is the greatest investor of all time. The Oracle of Omaha, as he’s referred to, is currently worth a staggering $85bn. A $10,000 investment in Buffett’s company, Berkshire Hathaway, back in 1965, would be worth somewhere around $90m today. In contrast, a $10,000 investment in the S&P 500 index, with dividends reinvested, would have grown to just under $1.5m.

Earlier this week, I spent some time looking at Buffett’s current portfolio. I was keen to dig deeper into his remarkable investment strategy. Is he doing something different to the rest of us? What’s his secret to generating such outstanding returns? Here’s a look at what I discovered.

Risk management

The first thing to note about Warren Buffett’s portfolio is that it’s well diversified. He currently owns just under 50 stocks. This means that if one stock performs poorly, it’s unlikely to do too much damage to his portfolio.

He’s also diversified across a range of different sectors. He owns financials, airlines, telecommunications specialists, food and beverage companies, healthcare stocks, technology firms and more. Again, this means that if one sector is struggling, it’s not the end of the world.

Sector analysis

Furthermore, a closer analysis reveals that Buffett appears to be quite bullish on certain sectors. He has a sizeable weighting to the consumer staples sector, with holdings in Kraft Heinz Co, Johnson & Johnson, Mondelez International and Procter & Gamble Co. These companies specialise in products that consumers need to buy irrespective of economic conditions.

He also appears to like financials. Not only does he hold several banks such as U.S. Bancorp and Bank of America Corp, but he also has an affinity for payments companies, owning American Express Company, Visa and Mastercard.

Large-cap focus

Another attribute of Buffett’s portfolio is that it has a strong focus on large-cap stocks. For example, Apple, Johnson & Johnson and Bank of America Corp are three of the largest stocks listed in the US. Apple has a market cap of $875bn. You won’t find Buffett fishing around the small-cap area of the market for an under-the-radar penny stock.

Simple ideas

Lastly, a key point to note about Buffett’s portfolio is that his investment ideas are all very simple. He only invests in companies that he understands. Apple, Kraft Heinz, American Airlines, The Coca-Cola Co, American Express – these are all companies with very simple business models. They all offer products and services that are easy to understand.

Can you replicate Buffett?

Can UK investors replicate a Warren Buffett portfolio? Absolutely. The FTSE 100 index is home to a number of stocks that have Buffett-like qualities. Look for high-quality companies that are leaders in their field, diversify across a number of different stocks and sectors, and keep things simple, and you’ll be well on your way to building a formidable portfolio that is capable of generating strong long-term returns.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple and Visa. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool UK has recommended American Express. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.