When it comes to making money on Wall Street, Berkshire Hathaway (BRK.A -0.36%) (BRK.B 0.11%) CEO Warren Buffett should be in a class of his own. Over a 57-year stretch as CEO, he's overseen the creation of almost $640 billion in shareholder value and guided his company's Class A shares (BRK.A) to a healthy aggregate return of 3,641,613% as of the end of 2021.

In other words, there's good reason everyone from Wall Street professionals to retail investors pays close attention to what the Oracle of Omaha is buying, selling, and holding.

Warren Buffett at his company's annual shareholder meeting.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

Diversification isn't necessary if you know what you're doing

Although there's a long list of factors paramount to Warren Buffett's long-term success, such as his love of dividend stocks and willingness to hold his investments for years, if not decades, what may not be readily apparent to most investors is that Buffett predominantly shuns diversification. In his view, diversification is only necessary if you don't know what you're doing -- and the Oracle of Omaha's track record certainly demonstrates he knows what he's doing.

In total, just 10 stocks account for 86.4% of the $356.7 billion portfolio Warren Buffett oversees for Berkshire Hathaway, including shares owned by New England Asset Management:

  1. Apple (AAPL -1.04%): $149.7 billion (42% of invested assets).
  2. Bank of America (BAC -1.25%): $35.1 billion (9.9%).
  3. Chevron (CVX -0.87%): $26.7 billion (7.5%).
  4. Coca-Cola (KO 0.95%): $25.2 billion (7.1%).
  5. American Express (AXP 0.07%): $23.8 billion (6.7%).
  6. Occidental Petroleum (OXY -2.43%): $13.9 billion (3.9%).
  7. Kraft Heinz (KHC 0.95%): $12.4 billion (3.5%).
  8. BYD (BYDD.F -0.56%): $7.6 billion (2.1%).
  9. Moody's (MCO -0.19%): $7.2 billion (2%).
  10. U.S. Bancorp (USB 1.07%): $6.4 billion (1.8%).

Apple is a "giant"

Warren Buffett's portfolio leaves little doubt about which company he believes can create significant value for Berkshire Hathaway over time. As of this past weekend, Apple accounted for 42% of Berkshire's invested assets and has previously been dubbed as one of Berkshire Hathaway's "four giants" by Buffett.

Why Apple? To begin with, Apple is the most valuable brand in the world, according to Brand Finance, and has an exceptionally loyal customer base. Brand recognition and customer loyalty are oft overlooked reasons some of the largest companies in the world are able to continually grow their sales and profits.

Apple is also one of the world's most innovative companies. Since introducing the 5G-capable iPhone during the fourth quarter of 2020, Apple's share of U.S. smartphone sales has been at least 47% in every quarter. 

However, Apple's future lies with subscription services. Though it's not abandoning the physical products that brought it fame and a loyal customer base, CEO Tim Cook is overseeing the logical transition of his company to a platform that emphasizes services. This should lead to steadier revenue growth and higher operating margins over time.

As one final note, Warren Buffett is a big fan of publicly traded companies that have stellar capital return programs. In Apple's case, it's repurchased approximately $520 billion worth of its common stock since 2013 and doles out one of the largest nominal-dollar dividends each year.

A person holding an American Express gold business card in their right hand.

Image source: American Express.

Financials are a Buffett favorite

Anyone who's followed the Oracle of Omaha's investments for any length of time shouldn't be surprised that financial stocks account for four of Berkshire Hathaway's top 10 holdings.

Warren Buffett has always favored putting his company's money to work in bank stocks, insurance companies, and payment processors, because he's playing a numbers game that strongly favors long-term investors. Even though recessions are an inevitable part of the economic cycle, they typically last for just a couple of quarters. By comparison, economic expansions are measured in years. Instead of trying to time when recessions will occur, Buffett has packed his company's portfolio with financial stocks primed to benefit from disproportionately long periods of domestic and/or global expansion.

Bank of America (BofA) is a particularly intriguing investment given its interest-rate sensitivity among money-center banks. With the Federal Reserve having no choice but to aggressively raise interest rates in order to tame historically high inflation, no large bank is set to benefit more than BofA. According to the company's most recent earnings presentation, a 100 basis-point parallel shift in the interest rate yield curve should generate an estimated $5 billion in added net-interest income over the next 12 months. 

American Express, which is Buffett's second longest-held stock (29 years), is another perfect example of a financial stock benefiting from long periods of expansion. Not only is AmEx bringing in merchant fees as a payment processor, but it's generating interest income and card fees as a lender. When the U.S. and global economy are growing, AmEx can double dip and really pump up its profits.

Furthermore, given American Express's ability to court affluent clientele, it can often navigate minor economic downturns better than most payment processors and lenders.

Energy stocks are the Oracle of Omaha's newfound love

But the real surprise in 2022 is that energy stocks account for more than 10% of Berkshire Hathaway's invested assets for the first time this century. The only two energy stocks Buffett has bought are integrated oil and gas plays Chevron and Occidental Petroleum.

With over $40 billion of invested assets tied up in Chevron and Occidental, it's pretty clear that the Oracle of Omaha and his investing team believe oil and gas prices will remain elevated for the foreseeable future. This is certainly a plausible assessment given Russia's invasion of Ukraine and the lack of capital investment in drilling, exploration, and midstream infrastructure since the COVID-19 pandemic began. Increasing domestic and global oil, natural gas, and natural gas liquid supply isn't going to happen overnight.

Buffett has also seemingly "hedged" his two sizable energy bets by piling into integrated operators. An "integrated" oil and gas company operates midstream and/or downstream assets in addition to drilling and exploration (i.e., upstream assets). Midstream assets, such as pipelines and storage, often produce highly predictable cash flow thanks to fixed-fee or volume-based contracts. Meanwhile, downstream assets, such as chemical plants and refineries, almost always benefit from lower input costs and higher demand when the price for crude oil falls.

The only real head-scratcher with Buffett's oil stock investments is why he chose Occidental. Chevron has what's arguably the best balance sheet among global oil companies. Comparatively, Occidental Petroleum is one of the most leveraged integrated oil companies in the United States. The Oracle of Omaha better hope that energy commodity prices remain high so Occidental has an opportunity to significantly reduce its net debt.