Warren Buffett’s track record as an investor is unimpeachable. Starting with $100,000 in capital (only $100 of which was his own), Buffett has gone on to amass a personal net worth estimated today at $69.2 billion.
According to Forbes, Buffett is the fifth wealthiest person in the world. His legendary adherence to the principles of “value investing” and his “buy and hold” philosophy have carried Buffett through many market bubbles and crashes over the years. And while he is sometimes criticized for old school values that stand in stark contrast to the day trading mentality that abounds on platforms such as Robinhood, there’s no arguing with results.
From 1987 until the end of 2019, the average annualized return of Berkshire Hathaway (NYSE:BRK.A) class A stock has been 14.9%, compared to the S&P 500 index’s average return of 9.4% in the same time span. Buffett investments have beaten the S&P 500 in all but a handful of years since he took control of Berkshire Hathaway in 1965. A thousand dollars invested with Warren Buffett in 1965 would today be worth more than $27 million, while the same $1,000 invested in the S&P 500 would now be worth roughly $200,000.
James Angel, Associate Professor of Finance at Georgetown University’s McDonough School of Business, explains Buffett’s investing style in an email to InvestorPlace, saying, “Warren Buffett is a very patient investor who only invests in what he understands, and is willing to pay a good price for a quality asset and then to hold onto it.”
He further listed major takeaways for investors, including making sure you understand the securities you’re considering investing in, being sure to understand the numbers and whether they make sense, a willingness to wait patiently and remembering that, “whenever you find a mispriced asset, whatever factors that led to the mispricing may get a lot worse before they get better.”
Here we look at seven of Buffett’s most prized and long held stocks that other diligent investors may want to consider for their own portfolios.
- Coca-Cola (NYSE:KO)
- Apple (NASDAQ:AAPL)
- Bank of America (NYSE:BAC)
- Costco (NASDAQ:COST)
- Amazon (NASDAQ:AMZN)
- American Express (NYSE:AXP)
- Barrick Gold Corp. (TSE:ABX)
It’s easy to look at the monster returns of Berkshire Hathaway and think investing like Buffett is beyond you. But it’s actually not all that complicated — anyone can do it if they’re willing to put in the time and effort.
Warren Buffett Stocks: Coca-Cola (KO)
We’ll start with one of Buffett’s longest held positions, the Coca-Cola Company. Buffett spent $1.3 billion to buy 400 million shares of Coca-Cola in 1988, and has held the position ever since.
Today, Coke is the second largest holding of Berkshire Hathaway based on number of shares owned, only beaten out by the company’s position in Bank of America (more on that later). The 400 million shares held by Berkshire Hathaway equal about 6% of the Coca-Cola company.
So what’s the attraction to Coke? The company meets many of Buffett’s criteria for investing. First, the company that makes sugary beverages is easy to understand. Second, it has historically held a durable competitive advantage and been a market leader in its segment. Third, the company is competently managed. And lastly, Coca-Cola pays a hefty dividend to its shareholders.
In fact, Coca-Cola is known as dividend aristocrat and has increased its annual payout to shareholders for 58 consecutive years. In 2019 alone, Buffett’s 400 million shares in Coca-Cola generated $640 million in dividend income for Berkshire Hathaway. Consider that Buffett has owned his stake in Coca-Cola for 32 years and you can see that he has recovered his initial investment many times over.
With such a massive dividend payment each year, buying and holding KO stock for the long term certainly makes sense. While Coca-Cola might not be flashy and new, it’s the kind of steady and reliable investment that Buffett has made his reputation (and fortune) on.
Apple is Berkshire Hathaway’s largest stake in a technology company today: Buffett holds more than 250 million shares of the iPhone maker.
What’s more surprising is that it’s one of just two FAANG stocks that Buffett holds in his portfolio (the other of course being Amazon). Buffett doesn’t even own shares of Microsoft, although Bill Gates is one of his closest friends and, until recently, was on the Board of Directors at Berkshire Hathaway.
But he certainly has taken a shine to AAPL stock. The Berkshire Hathaway chief executive spent $35 billion to acquire 250 million Apple shares between 2016 and 2018, and that stake is currently worth $125 billion. That makes Apple the most valuable holding in Berkshire Hathaway’s portfolio in pure dollar terms.
Buffett has been notoriously shy about investing in technology. He famously sat out the tech bubble of the early 2000s and many say he was late to invest in Apple. However, he couldn’t sit on the sidelines any longer when it came to AAPL stock and its growth story
In February of this year, just before the market crashed due to the Covid-19 pandemic, Buffett said on CNBC that Apple is “…probably the best business I know in the world. And that is a bigger commitment that we have in any business except insurance and the railroad.”
In fact, Buffett added “I don’t think of Apple as a stock. I think of it as our third business,” after Berkshire’s involvement in railroads and insurance.
Bank of America (BAC)
Since the global pandemic sent stock prices spiraling downward in March, Buffett has bought more shares of one stock than any other — Bank of America.
Buffett owned BAC stock before Covid-19 depressed its share price, sending it down from a 52-week high of just over $35 per share to $18 a share. But he has been aggressively increasing his stake over the summer, buying an additional $1.7 billion of Bank of America stock in recent months and increasing his total position in the bank to just under 12%.
Today, Berkshire Hathaway owns more than one billion Bank of America shares. That’s a big bet on the second largest bank in the U.S. Clearly, Buffett saw a bargain in Bank of America’s share price and took advantage of it. The average price he paid for BAC this summer was $24.65 per share.
Banks are a big part of Berkshire Hathaway’s portfolio, with current stock holdings in five of the largest U.S. commercial banks. In the past, Buffett has said “banking is a good business if you don’t do dumb things,” noting that he likes banks because they “earn high returns on tangible capital,” and have a lot of fixed assets.
Banks are the kind of rock solid and consistently reliable investments that Buffett prefers. And while banks can get into trouble with non-performing loans and debt during economic downturns, they tend to make money consistently over the long-term, which Buffett respects and appreciates.
Warehouse grocery store chain Costco is another Buffett favourite. The company operates the kind of straightforward, competitive and profitable business that Buffett loves. Equally important, Costco offers a product that consumers love and the company commands tremendous brand loyalty.
In fact, Costco’s business model fits so nicely with Buffett’s investment philosophy that there has been speculation that Berkshire Hathaway could buy the company outright in the same way it owns insurer GEICO. Buffett’s business partner Charlie Munger even sits on Costco’s Board of Directors. And Buffett has spoken glowingly about Costco’s in-house Kirkland brand. Plus, annual memberships in the warehouse club provide a predictable source of income that would be attractive to Buffett.
So far though, Berkshire Hathaway hasn’t made any moves to acquire more than the 4.3 million shares of COST stock that it currently owns, valued at $1.5 billion. Buffett first bought shares in Costco during the second quarter of 2000, after the stock fell 37% following worse-than-expected earnings. It was a strategic share grab that Buffett has become famous for during his career. And his investment in Costco has certainly paid off.
Buffett originally paid an average of $28.62 per share for Costco stock 20 years ago. Since then, Buffett’s investment in Costco has risen 1,110% (not including dividends) based on the current share price of $346.36. Not too shabby.
Buffett’s only other major technology holding is online retail juggernaut Amazon. In many respects, Amazon is an unusual investment for Buffett. The “Oracle of Omaha,” as Buffett is known, typically avoids stock so highly priced as Amazon at $3,400 per share.
This may account for the fact that Berkshire Hathaway only holds a little more than 500,000 shares of Amazon and it is one of Berkshire’s smallest positions. Still, Buffett couldn’t ignore the world’s largest online retailer, finally buying $1 billion worth of shares in the company in 2019, though the stock was actually purchased by two of Buffett’s lieutenants.
Buffett has said publicly that Amazon is a great company and even went so far as to say that he was “an idiot” for not buying Amazon shares sooner. Buffett explained his reason for avoiding Amazon in the past to his shifting investing philosophy, which has morphed from “buying fair companies at great prices” in the past to “buying great companies at fair prices” today.
Still, Buffett has done alright with his Amazon investment. He initially bought the shares for an average price of $1,850 a year ago, and since then they have appreciated 84%.
American Express (AXP)
In addition to banks, Buffett loves credit card companies. He owns stakes in the big three — American Express, Visa (NYSE:V) and Mastercard (NYSE:MA). And while he advises people not to use credit cards in their daily lives, owing to the high interest rates charged, he likes the companies behind the credit cards as an investor due to their consistent payments and cash flow.
And his biggest credit card holding is in American Express, which specializes in credit cards for businesses. Buffet holds more than 151 million shares of AXP stock, compared with 4.5 million shares of Mastercard and 10 million shares of Visa.
In many respects, American Express was one of Buffett’s most important investments. He first made an investment in the company in the mid 1960s when American Express was in financial trouble.
In 1963, American Express was struggling after making several bad loans. AXP stock fell more than 40% as the market worried that the company wouldn’t survive. Buffett was ready to buy, believing that the losses were only temporary, and that American Express’s brand gave it value over and above its competitors.
He was right. Having paid $35 a share for American Express stock, the shares quickly advanced to $70 per share, doubling Buffett’s investment in only three years.
Buffett has also praised American Express for its marketing, particularly popular slogans such as “Don’t leave home without it.”
Barrick Gold (ABX)
We’ll end with Barrick Gold, Buffett’s most recent stock acquisition and another of his more unlikely choices. News that Buffet had invested in the Canadian gold miner came as a surprise to many people given that Buffett has disparaged gold in the past as “unproductive” compared to actively managed companies.
However, Buffett seems to have changed his tune amid the market turmoil in equities this yea. The price of gold has skyrocketed, rising 25% in the past six months to an all time high of nearly $3,000 an ounce. Berkshire Hathaway paid almost $600 million to buy nearly 21 million shares of ABX stock at an average price of $28.61 per share.
While the purchase of Barrick Gold was seen as a personal reversal for Buffett, it was also seen as a major shot in the arm for gold stocks and gold mining companies such as Barrick, which have long been laggards when it comes to stock market performance. Yet gold is also known to be a safe haven in times of investing uncertainty and market turmoil. So the stake taken in Barrick Gold could be viewed as a bit of a hedge on the part of Buffett.
To be sure, Barrick Gold is an attractive buy at under $30 a share. The stock trades at less than 11 times its earnings, which means it is comparatively cheap. And the company pays a dividend, which it recently boosted by 14%. When one steps back and takes a big picture look at Barrick Gold, it is reasonable to think that this could be another savvy investment on the part of Buffett.
However, Luo Zuo, Associate Professor at the Samuel Curtis Johnson Graduate School of Management at Cornell University, cautions retail investors against thinking that they can become the next Warren Buffett so easily.
“If new investors could mimic his investing style, career and luck so easily, he would not be Warren Buffett,” says Zuo, adding that investors should focus on building a “well diversified portfolio” that can provide them with consistent returns over the long-term.
As of this writing, Joel Baglole owned shares of BRK.B, KO, AAPL, BAC and V.