For over five decades, investors have seen substantial gains by following Warren Buffett’s investment strategy. Since taking the reins at Berkshire Hathaway, Buffett, often referred to as the “Oracle of Omaha,” has steered the company to staggering growth, achieving a cumulative return of over 5.4 million percent for its Class A shares as of September 13.
One of the most compelling aspects of Buffett’s investment philosophy is his willingness to share the principles he uses to identify what he refers to as “wonderful companies.” These companies often exhibit strong competitive advantages, solid management, and a history of delivering significant returns on capital.
A cornerstone of Berkshire’s long-term success is Buffett’s approach to concentrating his portfolio. With approximately 43 stocks in a $309 billion investment portfolio, the majority of Berkshire’s assets are effectively positioned in what Buffett considers his top-performing stocks.
Remarkably, around 53% of this massive investment portfolio is anchored in just three powerhouse companies:
Apple: $89 billion (28.8% of invested assets)
Despite having offloaded over 500 million shares of the tech giant Apple in recent quarters, Berkshire still holds 400 million shares, making it one of its largest positions. Buffett has hinted at selling a portion of Apple for tax-related reasons, suggesting he prefers to realize gains at a favorable tax rate.
However, his faith in Apple remains unshaken. The company isn’t just a leader in manufacturing cutting-edge devices—it’s also pivoting towards subscription services, which can yield higher margins and foster greater customer loyalty. Apple’s significant stock buyback program, which has seen around $700 billion returned to shareholders since 2013, further solidifies its position as a vital asset for Berkshire, enhancing earnings per share.
American Express: $39.3 billion (12.7% of invested assets)
American Express, a stalwart in Berkshire’s portfolio since 1991, claims the title of the second-largest investment. Buffett’s affinity for financial stocks lies in their cyclicality. Recognizing that economic downturns are temporary, he appreciates how they can rebound, particularly credit services like AmEx, which thrives in extended periods of economic expansion.
American Express’s business model benefits from dual revenue streams, generating fees from merchants and income through lending. With a focus on affluent customers, it appears well-equipped to withstand economic fluctuations. Buffett’s original cost basis in American Express is remarkably low, allowing dividend yields to significantly enrich Berkshire’s returns.
Bank of America: $33.2 billion (10.7% of invested assets)
Completing this trio of invaluable investments is Bank of America, which boasts a robust profile due to its high sensitivity to interest rates. As rates have surged in recent years, BofA has benefited from increased net interest income. Recent trading activity has seen Buffett reducing his stake, yet Bank of America remains a critical part of Berkshire’s investment strategy.
Given the cyclical nature of banking, Bank of America stands to gain as economic conditions improve. However, with expectations of an easing cycle from the Federal Reserve, the implications for BofA’s profitability warrant close attention.
Conclusion
Investors looking to emulate Buffett’s strategy would do well to pay attention to these larger themes: concentrated investing in high-quality companies, a focus on strong cash flows, and an understanding of economic cycles. Whether considering entering positions in these heavyweights or exploring other opportunities, following the Oracle’s lead could provide insights into fruitful investments for the long haul.
In today’s economic landscape, where uncertainty looms, a solid investment strategy—grounded in time-tested principles—remains crucial for navigating the complexities of the stock market.