Few high-profile money managers have a nose for making money as much as WarrenBuffett does. The company's Class A shares have returned an average of 20.1% annually over the course of 57 years, thanks to the oracle of Omaha.
He's been a successful investor due to his love of dividends and his willingness to stick with his investments for many years. A key ingredient to his success is his portfolio concentration.
The oracle of Omaha believes in protecting against ignorant people. Buying a lot of stocks doesn't make sense if you don't know what you're doing. More than two thirds of the $313 billion investment portfolio is tied up in just six stocks.
WarrenBuffett is the CEO of the company. The Motley Fool used this image.
With his company's position in Apple, it's clear that Warren Buffet loves portfolio concentration. The tech stock has been labeled one of the "four giants" by the oracle of Omaha.
There are a lot of reasons why Apple is a good investment. A well-known brand, an extremely loyal customer base, and a product and service lineup driven by innovation are included. Apple has been able to maintain half of their U.S. market share due to the introduction of 5G-enabled phones.
The evolution of Apple has made it a force in the subscription services space. An ongoing transformation to a platform-based operating model should accelerate its organic growth rate, boost its operating margin, and minimize the revenue fluctuations associated with physical product replacement cycles
The capital return program is unique. Since the beginning of the year, it has paid out more than $12 billion in dividends and has bought back more than $520 billion of its own stock.
Banks with outstanding variable rate loans can benefit from rising interest rates. YCharts has effective federal funds rate data.
Bank stocks will always be Warren Buffet's favorite industry, even though Apple is his biggest holding. The investment in Bank of America is no surprise.
Bank stocks are great because of their ties. Recessions are an inevitable part of the economic cycle. Economic expansion usually lasts for many years. Long periods of expansion benefit banks. It's a simple game that favors patients.
Bank of America is the most sensitive of the big banks to company specific issues. No bank sees its net interest income increase or decrease more than BofA. Bank of America can expect billions of dollars in net interest income when the Federal Reserve raises interest rates.
The capital return program of BofA is large. It's not uncommon for the company to return in excess of $20 billion to shareholders each year.
Chevron is a relatively newer addition to the portfolio and is the third largest holding.
It's not something Warren Buffet is known for. Energy commodity prices could remain elevated for a long time. It will be difficult to quickly increase the global supply of crude oil and natural gas because of Russia's invasions of Ukraine.
The operating structure is one of the selling points for the company. Being integrated means that Chevron has control of upstream and downstream assets. The company's assets can generate predictable cash flow, even with the juiciest operating margin. Lower input costs help downstream assets. Assets that are downstream act as hedges against falling prices.
You shouldn't be surprised to know that the company is generous with its capital return program. The company may buy up to 15 billion of its shares this year as it has raised its base annual payouts for 35 years in a row.
The image is from Coca-Cola
Coca-Cola is Warren Buffet's longest-tenured holding and his fourth- largest position by market value.
Coke's long-term out performance is dependent on strong branding. Few companies are able to connect with consumers in a way that is easy to understand. Coca-Cola can reach younger consumers by using social media and well-known ambassadors, as well as leaning on its holiday tie-ins to connect with more mature audiences.
The geographic diversity of Coca-Cola is one of the reasons for its success. Cuba, North Korea, and Russia are the only countries where Coke has operations. It has a 20% share of the cold beverage market in developed countries and 10% in fast-growing emerging markets.
Coca-Cola has increased its base annual payouts for 60 years in a row. Coca-Cola's initial cost basis is about $3.25 per share, but the yield on the stock is more than double that.
I was wondering if I mentioned that Warren Buffet likes financial stocks. American Express is second only to Coca-Cola in holding time. For the past 29 years, AmEx has been a mainstay of the company.
AmEx benefits from long periods of economic expansion. It is able to double dip. It acts as a lender by using credit cards. AmEx can make money from long bull markets.
AmEx's ability to attract affluent clientele should be good news for Warren Buffet. High-earning individuals are less likely to change their spending habits or fail to repay their debts when there is a global economic hiccup. AmEx navigates downturns better with the help of these well- to-do customers.
American Express is an income powerhouse for the company. The company's yield is 24.5% thanks to a low cost basis of $8.49 per AmEx share.
The company's investment in the stock is almost $13 billion. This $13 billion does not include the $10 billion in preferred stock that was purchased by the company.
Among these six top holdings, the position of Occidental is the most aggressively built up this year. The same catalysts are used for both companies. The floor beneath the price of crude oil and natural gas should be maintained as long as the global energy supply chain remains constrained.
Even though it's an integrated provider, even more of the sales are skewed towards its drilling and exploration operations. If oil and natural gas prices stay above average, it's possible that Occidental will benefit more than Chevron.
A handsome capital return is on the way for the company. The 8% annual yield on its $10 billion preferred stock position is something to be proud of. Over the next year, the company should collect $901 million in dividends from the company.
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