Warren Buffett is known to many investors for his successful investment career. But there’s no secret to his success. Buffett, who runs Berkshire Hathaway, shares much of his investing advice openly. Based on the Buffett approach, here are three Warren Buffett shares – stocks held by Berkshire – I would consider as shares to buy now for my portfolio. I also share a couple of UK stocks I have selected using Warren Buffett investing principles.
When Buffett bought into Coca-Cola back in the 1980s, it was the largest position in Berkshire’s portfolio at that time. The company has what Buffett calls a moat. Its strong brands help protect it from competition. That matters as it allows the company to charge a premium for its drinks, something known as pricing power. Thanks to its powerful brands, the company is set to retain its competitive advantage in the future. Indeed, Buffett had said before that great brands last forever. While that may seem like a long timeframe, it is clear that great brands can produce returns for shareholders over many decades.
A UK share I would consider for my own portfolio applying the Warren Buffett investing style is Diageo. Like Coca-Cola, it owns brands such as Johnnie Walker and Diageo, which help to give it a business moat. But both Coca-Cola and Diageo face common risks. For example, changing consumer habits favouring healthier drinks could damage their appeal and revenues.
Warren Buffett shares in finance
Given his own financial acumen, it’s understandable that Buffett has a long history of investing in financial services shares. One of the companies in which Berkshire has held a stake for many years is credit card and insurance provider American Express. Like Coca-Cola and Diageo, the company benefits from strong brand appeal.
Buffett likes financial services providers. He is particularly interested in insurers, as they are able to put policyholder premiums to work. That simple but effective business model is one reason why financial services companies can often turn a strong profit. It can be a cyclical business, though. American Express trades 80% higher than a year ago, so I don’t think these Warren Buffett shares are cheap. But like Buffett, I’d be willing to buy American Express shares now and hold them for decades.
A UK-listed financial services company I would consider when applying Warren Buffett investing principles is Prudential. It also has a strong brand. Its customer base of millions of insurance policyholders should help it remain profitable. Just like Berkshire company Geico did in the US, Prudential is extending into new direct sales channels in Asia to help scale its business further. Both American Express and Prudential face risks common to financial services companies, though. For example, an economic downturn could lead to a sharp fall in customer demand and profits.
Buffett loves insurance companies. The business model is enduring, and the large sums of money involved mean that even a low-margin insurance business can be profitable.
Insurance broker and risk management company Aon has attractive margins and a strong record of growth. That may explain why its shares have joined the Berkshire portfolio. I would consider adding them to my own. One risk is that the recently abandoned merger with rival Willis Towers Watson will reduce the company’s growth outlook.
Christopher Ruane has no position in any shares mentioned. American Express is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended Diageo and Prudential and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.