In recent years, Berkshire Hathaway (BRK.A 2.24%) (BRK.B 1.97%) CEO Warren Buffett has taken a lot of criticism for underperforming the benchmark S&P 500. Some folks have even implied that the Oracle of Omaha may have lost his touch. But back out your analysis of Buffett's historical performance beyond the past decade and you'll see just how much he's excelled as a stock picker over the years.
According to Berkshire Hathaway's 2019 shareholder letter, the broad-based S&P 500 has gained a cool 19,784%, including dividends paid, over the past 55 years. Comparatively, Berkshire Hathaway's per-share market gain has totaled (drum roll) 2,744,062% over the same period.
Buffett and his team have absolutely obliterated the market over the long-term, and he's done it by buying great businesses and holding them for long periods of time. Based on the publicized cost basis for his company's top holdings, as of Dec. 31, 2019, Buffett is sitting on almost $108 billion in unrealized capital gains from the following five stocks. And please note, this doesn't include the dividends Berkshire Hathaway has received, which would inflate these gains even more.
Apple: $60.97 billion in unrealized gains
If anyone suggests that Warren Buffett has lost his touch, kindly point them to his selection of Apple (AAPL 0.48%) as a core holding. Buffett began buying Apple stock in 2016, with the company's close to 251 million shares owned having a cost basis of $35.29 billion. Today, Berkshire Hathaway's stake in Apple is worth more than $96 billion. For added context, Apple now makes up almost 44% of Berkshire Hathaway's invested assets.
There are two key reasons Apple continues to be a great investment for Buffett. First, there's the company's innovation and branding. Apple has demonstrated time and again that its products have staying power. Just take a look at the long lines at its stores anytime a new product is released, and you'll understand the power of Apple's brands with consumers.
The other reason Apple has been such a fantastic investment is CEO Tim Cook. Apple's CEO has made no secret that he plans to pivot Apple away from products and toward high-margin services and wearables going forward. He's also been a major advocate of rewarding shareholders, with Apple aggressively buying back its own stock and increasing its dividend in recent years.
Coca-Cola: $16.76 billion in unrealized gains
Warren Buffett has also made a pretty penny off of Berkshire Hathaway's longest-tenured investment, beverage company Coca-Cola (KO 1.93%). Based on information in Berkshire's 2019 shareholder letter, Buffett's cost basis on Coca-Cola is about $3.25 a share. This means Berkshire Hathaway's $1.28 billion investment is now worth closer $18.1 billion, as of this past weekend.
Again, the key to Coca-Cola's success has been its ability to brand its products and engage with consumers. Coca-Cola has one of the most recognized brands in the world, and it utilizes a myriad of channels to engage consumers. This includes associating its products with holidays (e.g., Santa Claus drinking a Coke), advertising at the point-of-sale, hiring well-known athletes as ambassadors, and even using social media influencers as brand ambassadors.
Furthermore, Coca-Cola's geographic reach plays a key role in its success. With the exception of Cuba and North Korea, you can find Coca-Cola products in every country in the world. With over 20 brands generating $1 billion or more in sales, this is an investment Buffett is unlikely to ever sell.
American Express: $12.85 billion in unrealized gains
Another longtime holding that's made Buffett a lot of money is credit services giant American Express (AXP 3.59%). Over 27 years, the Oracle of Omaha has watched his company's investment in AmEx grow from $1.3 billion into more than $14.1 billion, as of this past weekend.
One reason American Express has been such a stud for Buffett is the fact that it's tied to the health of the U.S. and global economy. As a payment processor, AmEx is able to collect fees from merchants. However, it also acts as a lender, with a line of credit cards used by consumers and businesses. Thus, when the U.S. and global economy are expanding, American Express benefits from higher purchase volume crossing its networks, as well as juicier fees and interest income associated with its credit cards.
American Express's success can also be partially attributed to its clientele. AmEx is well known for its ability to attract more affluent consumers, who are less likely to change their buying habits or fail to pay their bills when there's a hiccup in the U.S. or global economy. Like Coca-Cola, AmEx is a stock that Buffett will probably never sell.
Bank of America: $10.21 billion in unrealized gains
Considering that Buffett is a huge fan of bank stocks, it should come as little surprise that he's made a killing on Bank of America (BAC 3.35%) in recent years. Even with a significant retracement in BofA's stock in 2020 due to the coronavirus disease 2019 (COVID-19) pandemic, Bank of America has made Berkshire Hathaway more than $10.2 billion in unrealized gains.
Make no mistake about it, the Bank of America you see today is nothing like the BofA that was an absolute mess when Buffett bought preferred shares of the company back in 2011. The credit quality of BofA's loan portfolio is substantially higher now than it was back then, and it's much better capitalized. It also happens to be one of the more interest-sensitive big banks, meaning that it'll be set to benefit in a big way once the Federal Reserve does begin raising its federal funds rate in (presumably) 2023.
Bank of America has also excelled in the cost control department. With more of its members than ever using digital banking and/or mobile banking solutions, BofA has been able to reduce its physical branch count to lower its expenditures. I don't foresee Bank of America losing its status anytime soon as Berkshire Hathaway's second-largest holding.
Moody's: $6.98 billion in unrealized gains
Last, but not least, credit ratings agency and data analytics company Moody's (MCO 1.03%) has delivered big returns for Buffett. On a percentage basis, Moody's is Berkshire Hathaway's top-performer, with a gain of better than 2,800% (again, not including dividends). This translates into almost a $7 billion unrealized gain for Buffett's conglomerate.
One of the more exciting growth opportunities for Moody's in the near-term is its role as a debt securities rating agency. With interest rates plunging around the world, we're liable to see businesses big and small raising money through debt offerings. That's going to keep Moody's debt rating operations very busy for the foreseeable future.
Likewise, recent market volatility and the many changes brought about by COVID-19 should drum up business for Moody's research analytics division. The need for actionable data and consultations will likely allow Moody's analytics segment to grow by a double-digit percentage. Similar to the other names here, Buffett isn't likely to part ways with his stake in Moody's anytime soon.