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These Warren Buffett Winners Are Largely Carrying the Stock Market on Their Shoulders

By Keith Speights – Jun 20, 2020 at 6:47AM

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Market caps matter.

Warren Buffett isn't winning so far in 2020. Shares of his beloved Berkshire Hathaway (BRK.A -0.27%) (BRK.B -0.38%) are underperforming the S&P 500 index by around 15%. Most of the individual stocks owned by Berkshire remain in negative territory year to date.

But this doesn't mean that the Oracle of Omaha doesn't have some winning stocks in Berkshire's portfolio. Actually, two of Buffett's winners are largely carrying the entire stock market on their shoulders. 

Tiny gold bull on top of stock market key on a PC keyboard.

Image source: Getty Images.

Winning ways

Warren Buffett is famous for not investing in companies he doesn't understand. As a result, technology stocks haven't played a big role in Berkshire's investment strategy -- at least that was the case until a few years ago.

In 2016, Buffett finally took a bite out of Apple (AAPL 0.21%). A big bite. It didn't take very long for Apple to become the single-largest holding in Berkshire's portfolio.

He became such a huge fan of Apple that he has referred to it as Berkshire Hathaway's "third-largest business." Buffett stated in an interview with CNBC earlier this year that Apple is "probably the best business I know in the world." Apple has been a big winner for Buffett since 2016. It's also been one of the legendary investors' few winners so far this year, racking up a gain close to 20%.

There's another huge tech stock that's been an even bigger success story for Berkshire in 2020 -- Amazon (AMZN -1.14%). Shares of the e-commerce giant have skyrocketed more than 40% year to date, making Amazon the top-performing stock in Berkshire's portfolio.

However, Buffett didn't take the lead with Berkshire's investment in Amazon as he did with Apple. Even before a regulatory filing in May 2019 revealed that Berkshire had invested in Amazon, Buffett stated in an interview that one of his investment managers had initiated the purchase. He acknowledged, though, that he had "been a fan" of Amazon for a while and had "been an idiot for not buying it."

Broad shoulders

It's easy to examine the performances of the stocks in Berkshire's holdings to see how Amazon and Apple stack up against the rest. What's not so evident, at least on the surface, is how important the two stocks have been this year in driving the stock market higher.

For many Americans, the S&P 500 represents the overall stock market. Although the major index really doesn't reflect the entire market, its market capitalization represents roughly 75% of the market cap of the entire U.S. stock market.

The S&P 500 index is weighted by market cap, with larger companies carrying greater weight in the index. As two of the three biggest companies in the world, Amazon and Apple together make up more than 9% of the S&P 500.

Just how much do Amazon and Apple carry the stock market on their shoulders? The S&P 500 is down around 5% year to date. Without the big gains by these two giant tech stocks, the index would be down around 8%. Just two stocks have caused the S&P's year-to-date loss to close to half of what it would have been otherwise.

The market's open secret

The top five companies in the S&P 500 -- add Microsoft, Facebook, and Alphabet to the mix, along with Amazon and Apple -- make up around one-fifth of the entire market cap of the index. Combined, the stocks of these companies have pushed the S&P 500 up by a little under 5% this year.

But there's an open secret: A very small number of very big companies drive the overall stock market. It's extremely difficult for the market to perform well when these tech giants are floundering. And when these big stocks are doing well, the overall market isn't likely to perform too badly.

Amazon, Apple, and their technology peers seem likely to keep up their winning ways. That's good news for Warren Buffett -- and for the stock market. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Keith Speights owns shares of Alphabet (A shares), Amazon, Apple, Berkshire Hathaway (B shares), Facebook, and Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Facebook, and Microsoft and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$151.09 (0.21%) $0.32, Inc. Stock Quote, Inc.
$113.84 (-1.14%) $-1.31
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$398,057.75 (-0.27%) $-1,070.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$263.31 (-0.38%) $-1.01
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$134.55 (-1.33%) $-1.82
Microsoft Corporation Stock Quote
Microsoft Corporation
$235.15 (-0.97%) $-2.31
Alphabet Inc. Stock Quote
Alphabet Inc.
$97.06 (-1.14%) $-1.11
Alphabet Inc. Stock Quote
Alphabet Inc.
$97.52 (-1.31%) $-1.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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