Investors have been told for years that a diversified stock portfolio is a must in troubled times. Yet Warren Buffett, the world’s most successful investor, hardly does anything about it.
More than 78% of Buffett’s investment vehicle Berkshire Hathaway, worth nearly $ 188 billion in total, is invested in just five stocks, The Motley Fool notes.
Berkshire Hathaway has delivered an average annual return of 20.3% over the past 55 years. Suppose you had invested $ 100 in Berkshire Hathaway in 1965, you would have had a fortune of $ 2.7 million at the end of 2019.
These are the five companies:
Apple: 115,4 miljard
This American tech giant accounts for nearly half of Berkshire Hathaway’s invested capital and would generate nearly $ 80 billion in profit for Buffett on sale. And the dividend is added to that.
Investors who buy Apple know exactly what they are getting. The iPhone is still wildly popular in the US, and the 5G version is likely to be a major growth catalyst in the last quarter of this year and early next year. CEO Tim Cook is also making a switch to services, which will boost margins and profit figures even more.
Buffett is also a big fan of Apple’s dividend policy. The company pays out $ 14 billion in dividends annually and has aggressively repurchased its own shares.
Also read: Almost half of Warren Buffett’s portfolio is Apple
Bank of America: 26.1 billion
It’s no secret that Buffett is a huge fan of banking stocks, especially since they make money in the long run. Buffett often fills Berkshire Hathaway’s portfolio with cyclical companies that can take advantage of long periods of economic growth.
Bank of America certainly fits in that vein. As soon as the Fed decides to raise interest rates, Bank of America will benefit. Furthermore, in recent years, the bank has cut back on personnel costs in particular: digital and mobile banking are becoming increasingly popular, so BofA has chosen to close a small percentage of the branches to limit spending.
Coca-Cola: 20.2 billion
This American beverage giant has been part of the Berkshire Hathaway portfolio for 32 years and is unlikely to be sold anytime soon.
There are two reasons why Buffett loves Coke. First, the company has strong brand awareness and a huge geographic reach. Coke is active in almost every country in the world, with the exception of North Korea and Cuba.
Second, Coke is a so-called dividend aristocrat – the payout is constantly being increased – who has brought Buffett a large amount of money over the years.
See also: With dividend, Buffett doubles his money
American Express: 16,1 miljard
This American payment giant has been part of Buffett’s portfolio for 27 years.
As mentioned, Buffett is a fan of companies that can take advantage of long periods of economic expansion. American Express not only processes retail transactions within its network, but also lends money to individuals and businesses, reaping the benefits of interest income.
While American Express is exposed to the risk of default during recessions, periods of economic growth last significantly longer than periods of contraction. In addition, the company has managed to attract many wealthy consumers over the years. The wealthy are generally not affected by a minor economic downturn, which means American Express is better able to get through the current economic weakness than the competition.
Kraft Heinz: $ 10.2 billion
Finally, there is Kraft Heinz, which has made little impression in recent years. Berkshire Hathaway owns just over a quarter of the company’s outstanding stock.
The problem is that Heinz overpaid for Kraft Foods in 2016, causing the combined company to write down more than $ 15 billion in goodwill on a number of major brands in February 2019 and cut its dividend by 36%.
Although sales of a number of products were significantly higher due to the corona pandemic, Kraft Heinz still faces $ 33.3 billion in goodwill and nearly $ 29 billion in long-term debt. There just isn’t a lot of room to boost sales.
Still, Buffett collects $ 1.60 per share in dividend annually, which equates to a payout of a whopping $ 521 million. In such a case, waiting may not be very annoying.
Also read: How many shares does it take to beat the market?
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