Everyone likes the idea of investing in the way Warren Buffett does, but his not-so-secret star ingredient, patience, can be tough to implement in practice. Since March 2003, the 650% total return of his company, Berkshire Hathaway, has proven his approach, trouncing the market's return of around 582%.
If you want to try to get something that will hopefully approximate those good returns over the next 20 years, it could be as simple as buying shares of a couple of Buffett's favorites and then forgetting about them for as long as you can manage it.
Here are two examples of Buffett stocks to anchor your portfolio for decades to come -- if your temperament is as consistently serene over time as his has been.
1. Johnson & Johnson
Johnson & Johnson (JNJ -0.13%) is a classic Warren Buffett stock, though he first invested in it as recently as 2006, and his holdings are now only worth around $57.7 million.
The company features an enduring competitive advantage built on the power of its consumer health brands like Tylenol and Band-Aids, and it also competes in the pharmaceutical industry to generate faster-paced growth than what its other products can deliver. As it can collect revenue from sales of those legendary brands for years and years, it makes sense why Buffett is bullish about its future -- and you should be too.
Beyond its household-name brands, Buffett's affection for J&J likely stems from its tortoise-style consistent growth, in which it incrementally adds to its earnings each year for decades on end, dropping shareholders some dividends and making share repurchases every quarter along the way. Since the fourth quarter of 2013, its quarterly net income has risen by an average of 15.2%, year over year, reaching more than $3.5 billion, and in the same period, its dividend has risen by 71% -- both of which point to the enduring success of its business model and its enduring financial strength.
What's more, the company will soon split into two, with one part taking over its consumer health business and the other retaining the Johnson & Johnson name as well as its pharmaceuticals and medical device business. That means Buffett and other shareholders will have the slow-growing consumer health business that he likes as well as a faster-paced pharma instead of just one stock, and the move could well make for better shareholder returns if the two entities can run leaner and more profitable operations after the separation, which is slated for sometime in 2023.
So, now is a special buying opportunity in J&J's history, as the conditions of slow and steady growth are rarely available directly alongside the potential for medium-paced expansion from sales of pharmaceuticals.
But there is one thing about J&J that the Oracle of Omaha is unlikely to be very pleased about: the ongoing litigation seeking billions of dollars in damages for cancers caused by its talcum powder products. Still, even if it has to pay out upwards of $3.5 billion for the existing set of claims against it, the company has more than $23.5 billion in cash and equivalents, so there's a very high chance it'll be able to continue chugging along for decades.
2. Apple
Apple (AAPL 0.50%) is another great example of a Warren Buffett stock thanks to its unstoppable brand, loyal customer base, dominant market position, tons of recurring revenue, and shareholder-friendly management. It's also one of Warren Buffett's biggest bets; he owns $116.3 billion worth of its shares, making it his largest holding in Berkshire Hathaway, accounting for 38.9% of its equity portfolio.
In fact, Buffett is on record as saying in 2020 that the company was "probably the best business I know in the world," which is high praise coming from the world's most illustrious investor, to say the least.
It isn't too surprising to see what Buffett likes about Apple, given that the company can make oodles of cash by making updates to its software packages and hardware products like the iPhone each year. In 2022, the tech titan brought in $394.3 billion in revenue and a net income of $99.8 billion, and in the first quarter of 2023 alone, it handed back $3.8 billion in dividends while also making $19 billion in share repurchases.
While it's possible that a competitor might make a phone or computer with better specs than Apple's, its ecosystem of products ensures that customers face high costs to defect, thereby protecting its market share.
Furthermore, Apple's rate of growth is quite high, and there's little indication of it slowing down even though its domestic market is permeated with its products. In the past five years, its quarterly net income climbed by an average of 18.3% year over year, even as its total expenses fell as a percentage of its annual revenue.
For a profitability stickler like Buffett, there's not much better than a company that can grow its top and bottom lines at the same time while also simultaneously slashing costs, and that's probably why Apple is his favorite company. And in case the above didn't make it clear enough: You should buy this stock and hold it forever because there's no whiff of anything that suggests Buffett got it wrong.