Berkshire Hathaway (BRK.A 0.19%) (BRK.B 0.12%) CEO Warren Buffett has a gift for growing money. Since 1965, he has guided Berkshire stock to a compound annual return of 20%. That average rate of return would have turned $1,000 into $36 million over 57 years.
Buffett's record of growing money is why many investors watch his every move, but it should be noted that not all the stocks Berkshire holds are picked by Buffett. The company has two other investment managers who oversee a small portion of Berkshire's assets. Since Ted Weschler and Todd Combs were selected to eventually oversee Berkshire's entire portfolio when Buffett isn't around someday, these managers also possess outstanding investing skills and are worth following.
If you're going to follow Buffett, you might as well start with Berkshire's largest holding. Apple is one of the biggest investments Buffett has ever made in a company, whether public or private. That speaks volumes about what Buffett thinks of Apple's business. The stock has risen over 400% since Berkshire initially purchased shares in late 2016.
Apple is the most valuable brand in the world, according to Brand Finance's global 500 list for 2022. The tech giant has sold millions of iPhones, iPads, and Macs, bringing its total base of active devices to 1.8 billion at the start of the year.
The power of Apple's brand is on display through the growth of the services business. This includes sales of apps, subscriptions, iCloud storage plans, AppleCare protection plans, and more. Spending in these areas reflects a customer base that is heavily invested in the Apple ecosystem. On a trailing 12-month basis, revenue from services totaled $75 billion through the quarter ended in March, making up nearly 20% of Apple's total revenue.
The services business is emerging as an important value driver for Apple since it generates double the gross margin as hardware. More sales of iPhones and Macs will create more demand for services. On that score, revenue grew 9% year over year in the fiscal second quarter ended March 26, driven by a record March quarter for iPhone, Mac, home products, and wearables.
Apple has a powerful brand, a growing services business, and a $73 billion mountain of cash to invest in new products. That's why it can anchor anyone's portfolio.
Amazon is a smaller position in Berkshire's equity portfolio, which also means it was purchased by one of Berkshire's investing lieutenants. Still, Amazon has the hallmarks of what Buffett looks for in a long-term investment.
Amazon is the second-most-valuable brand in the world, according to Brand Finance. The company has created a tight connection with customers through its enormous selection of goods and services. Products like Echo smart-home devices and grocery delivery through Whole Foods Market keep customers locked into the Amazon ecosystem.
While Amazon is involved in a lot of businesses, including cloud services and increasingly healthcare, Prime members continue to be an important driver of the company's growth. With over 200 million Prime members, Prime Day has become an annual shopping holiday. During the most recent event held in July, customers in the U.S. bought over 60,000 items per minute.
It's difficult to say which is more impressive: the volume of orders or Amazon's ability to fulfill those orders. Both speak to Amazon's unassailable competitive advantage in retail.
Amazon has generated a tremendous amount of free cash flow in recent years. It is using those resources to reinvest in expanding its fulfillment capacity to meet demand. It spent $61 billion over the last year through the first quarter, with 70% of that going toward infrastructure to support cloud services and the retail business.
These investments are widening Amazon's competitive lead and all but guarantee that the company will continue to deliver returns for shareholders.