Portfolio Overview: How Warren Buffett Invests
Many people who are new to investing look to famous investors in search of ideas about where to put their money. This article is the first in a series of posts in which we’ll go over how names like Warren Buffett, Ray Dalio, and Jeff Bezos invest.
This time, we’ll quickly go over some of the key aspects of how billionaire Warren Buffett allocates his capital.
Keep in mind, though, that there is no single right way to invest and that we are by no means making recommendations on what you should do with your money. Remember to always consider your particular situation, objectives, and risk tolerance – this content serves strictly informational and entertainment purposes.
Buying businesses below their intrinsic value
Warren Buffett is known for value investing – his strategy generally consists of buying stocks that are “cheap” compared to what he considers their intrinsic value. He’s also known for holding on to his stocks for decades, without worrying too much about market volatility.
The video above summarizes some of Buffett’s key ideas on investing, which include restricting your investments to your circle of competence, saving uninvested cash for growth opportunities (Buffet had over US$ 128 billion in cash waiting to be deployed at the end of 2019), and owning stocks for the long-term regardless of fluctuations in stock price.
68% of Buffett’s portfolio is in these 4 stocks
Warren Buffett tends to be very picky when it comes to choosing what stocks to buy. In general, he aims to invest in companies that are time tested, have good management teams, and offer sustainable competitive advantages. As noted by The Motley Fool:
“Of Buffett’s more than $196 billion in portfolio worth, as of May 21, 2020, 68% of it was centralized in just four stocks”
Apple (AAPL): This tech giant accounts for more than 40% of Buffett’s portfolio and there are many possible reasons why. To mention a few: the iPhone has accounted for almost half of the US smartphone market since 2014 and Apple pays approximately $14.2 billion in dividends to shareholders each year according to stats from The Motley Fool. Apple is also known for repurchasing its own common stock in recent years, which may be an indicator of the company’s plans regarding future growth.
Bank of America (BAC): Buffett has been an investor in Bank of America for a long time now. This is actually a notable investment of his, which he started buying into in 2011, in the aftermath of the 2008 financial crisis. You can read more about that story here.
Coca-Cola (KO): The beverage giant Coca-Cola is a company Buffett has been holding on to since 1988 and accounts for 9.2% of Berkshire Hathaway’s invested assets. Potential arguments for investing in Coca-Cola include that it’s considered to be a somewhat defensive, predictable stock. Moreover, the company has an annualized dividend of US$ 1.68 which doesn’t hurt either.
American Express (AXP): American Express has been part of the Berkshire Hathaway portfolio since 1993. AmEx is known to attract clients who are financially well-off and has an interesting dual-revenue strategy – it charges merchants fees for credit transactions and lends to consumers and businesses via credit cards. The company’s 0.96% dividend yield is also something Buffett is likely to enjoy.
What do you think of Buffett’s current investments? Once again, remember that everyone’s situation is different. Investing involves risk, including loss of principal. Be sure to consider your own financial situation and perform thorough research to create a portfolio that supports your goals.
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