For a span of nearly six decades, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) CEO Warren Buffett has been wowing Wall Street with his investing prowess. Despite being just as fallible as any other investor, the Oracle of Omaha and his team have overseen a nearly 20% annualized return since the mid-1960s. On an aggregate basis, we're talking about a gain for the company's Class A shares (BRK.A) of almost 4,400,000% since Buffett took over.
What's made this outperformance so incredible is that Buffett and his investment team, including the late Charlie Munger, have stuck to old-school principles to make their shareholders meaningfully richer for more than a half-century. They've predominantly invested in time-tested, brand-name companies with well-defined competitive advantages and strong management teams.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
But perhaps most important, the Oracle of Omaha and his team strongly believe in portfolio concentration. This is to say that an outsize percentage of invested assets should be put to work in their top investment ideas.
As of the closing bell on Dec. 1, 2023, 79% -- $286.3 billion -- of the $363 billion investment portfolio overseen at Berkshire Hathaway by Warren Buffett was invested in just six stocks.
1. Apple: $175,091,767,454 (48.2% of invested assets)
The largest holding in Berkshire Hathaway's portfolio, tech stock Apple (AAPL -0.35%), leaves no shred of doubt that the Oracle of Omaha prefers to concentrate his company's invested assets in his and his teams' top ideas. Apple accounts for almost half of Berkshire's invested assets.
What's made Apple such a popular investment is its cutting-edge innovation, which is led by the iPhone. Even though Apple wasn't the first company to introduce a 5G-capable smartphone, it quickly gobbled up more than half of U.S. smartphone market share once a 5G-capable iPhone hit stores during the fourth quarter of 2020.
Arguably even more exciting is Apple's ongoing shift to a subscription-driven platform. To be clear, it's not giving up on the physical products (iPhone, Mac, and iPad) that brought it fame. Rather, it's evolving as a company to support various services that'll further enhance its operating margin, drive improved customer loyalty, and smooth out the revenue fluctuations that typically accompany major iPhone replacement cycles.
For Buffett, Apple's biggest selling point might just be its market-leading capital-return program. Apple is dishing out $15 billion in dividends to its shareholders each year, and it's repurchased more than $600 billion worth of its common stock since the beginning of 2013.
2. Bank of America: $31,977,098,106 (8.8% of invested assets)
If there's a sector Buffett is an expert on among all others, it's financials. He's an especially big fan of bank stocks, which benefit from disproportionately long periods of economic expansion. This is one reason why Bank of America (BAC -0.21%) accounts for nearly 9% of Berkshire's $363 billion of invested assets.
The factor that really helps Bank of America stand out from other U.S. money-center banks is its interest rate sensitivity. Changes in interest rates impact BofA's net interest income more so than any other big bank. With the Federal Reserve increasing the federal funds rate by 525 basis points since March 2022, Bank of America has seen its net interest income climb by billions of dollars every quarter, compared to where things stood a few years ago.
In addition to taking advantage of a higher-rate environment, BofA's technology investments are paying off. As of the end of September, 74% of its consumers were actively banking online or via mobile app, with a notable uptick in loan sales completed digitally, compared to prior to the COVID-19 pandemic. Digital transactions are considerably cheaper for banks than in-person interactions.
Bank of America is cheap, too. It can be scooped up right now for 5% below its book value and is doling out a market-topping 3.1% yield.
3. American Express: $26,343,875,232 (7.3% of invested assets)
It's a fairly similar story for the No. 3 holding, credit services provider American Express (AXP -0.62%). Since recessions are short-lived, companies reliant on merchant fees and interest income tend to disproportionately benefit from long-winded expansions.
The proverbial ace in the hole for Amex is that it's able to play both sides of a transaction. It's the third-largest payment processor in the U.S., based on credit card network purchase volume, and is also able to collect annual fees and interest income from its cardholders (consumers and businesses). Being able to double-dip can really lift American Express' bottom line during periods of robust economic growth.
Something else working in Amex's favor is its propensity to attract high-earning cardholders. People with higher incomes are less likely to alter their spending habits when inflation rises or an economic downturn takes shape. In other words, American Express' clients are more likely to continue paying their bills. In theory, this should help Amex better navigate challenging economic climates.
Patience has also paid off for Buffett. Berkshire Hathaway has an exceptionally low cost basis of approximately $8.49 per share on Amex. Based on Amex's base dividend of $2.40 per share, Buffett's company is enjoying a hearty 28.3% annual yield on cost.
Image source: Coca-Cola.
4. Coca-Cola: $23,456,000,000 (6.5% of invested assets)
No company has been a continuous holding in Berkshire Hathaway's portfolio longer than beverage stock Coca-Cola (KO) -- since 1988. Coca-Cola has also increased its base annual dividend for 61 consecutive years (and counting), and it's netting Buffett's company a jaw-dropping 56.7% yield on cost.
The lure of Coca-Cola is that it's a consumer staples company. Consumers are going to buy food and beverages no matter how well or poorly the U.S. or global economy perform. Coca-Cola itself has more than two dozen brands generating at least $1 billion in annual sales. This translates to highly predictable sales and operating cash flow for the company in any economic climate.
To add to the above, Coca-Cola is operating in all but three countries (North Korea, Cuba, and Russia). Having such globally diverse operations allows it to generate steady cash flow in developed countries, while relying on faster organic growth rates in emerging markets.
Credit should be given to Coca-Cola's top-notch marketing, too. It's successfully reaching new generations of consumers with digital ad campaigns, yet has had no trouble maintaining its engagement with more mature audiences via well-known brand ambassadors.
5. Chevron: $15,965,054,730 (4.4% of invested assets)
Prior to the start of the decade, energy stocks were mostly an afterthought for the Oracle of Omaha and his investment team. But that's changed in a big way, as evidenced by the nearly $16 billion that's currently being put to work in integrated oil and gas stock Chevron (CVX 0.37%).
An investment of this magnitude is a pretty clear indication that Berkshire's brightest minds believe the spot price of crude oil will head higher, or at the very least remain well above its historic norm. Russia's ongoing war with Ukraine, coupled with years of capital underinvestment from energy companies due to pandemic-related uncertainty, has led to tight supply in the global oil market. As long as supply remains somewhat constrained, there's reason to believe the spot price for crude oil will be elevated.
Although Chevron generates its juiciest margins from its drilling operations, it's also able to hedge weakness in crude pricing with its other segments. For instance, Chevron's downstream refineries and chemical plants will enjoy lower input costs if the spot price of crude oil declines. This added cash flow can help Chevron weather any short-lived turbulence.
Big oil companies are known for their hefty capital return programs as well. Earlier this year, Chevron's board OK'd an up to $75 billion share repurchase program, which came on the heels of the company's 36th consecutive annual dividend increase.
Higher West Texas Intermediate crude oil prices have been a boon for Occidental Petroleum. WTI Crude Oil Spot Price data by YCharts.
6. Occidental Petroleum: $13,416,241,918 (3.7% of invested assets)
The sixth stock that, along with Apple, BofA, Amex, Coca-Cola, and Chevron, collectively accounts for 79% of the portfolio Buffett oversees at Berkshire Hathaway is yet another oil and gas stock, Occidental Petroleum (OXY -0.15%).
The Oracle of Omaha and his team have dived headfirst into Occidental common stock since the start of 2022. More than 228 million shares have been purchased, which comes atop the preferred stock yielding 8% annually that Berkshire has owned in Occidental Petroleum since 2019.
Though the catalysts for Occidental Petroleum mirror those of Chevron, there are two key differences between these two oil and gas companies. The first can be found with their balance sheets. Whereas Chevron has one of the lowest debt-to-equity ratios among major oil and gas companies, Occidental is still mired in debt following its purchase of Anadarko in 2019. It'll need energy commodity prices to remain elevated in order to continue improving its financial flexibility.
The other big difference between Chevron and Occidental is the latter's reliance on drilling. Although both are integrated operators (Occidental operates chemical plants), Occidental Petroleum generates an outsize percentage of its revenue and operating cash flow from its drilling operations, when compared to Chevron. If the spot price for crude rises, Occidental should disproportionately benefit. But the opposite is also true: A declining spot price for crude oil will hurt Occidental's cash flow more than most drillers.
